The FED’s bite is worse than its bark
If any emerging market thought that the US Federal Reserve is a paper tiger whose bark is worse than its bite, the last few months have shattered that illusion. Already, the bite is hurting a lot more and the tiger still appears to be hungry and on the prowl.
The comparison below is actually biased in favour of a bigger effect for the bark because it focuses on the Fragile Five who were the worst sufferers during the barking phase. I have left out Argentina and China who have suffered only or mainly in the biting phase.
The FED’s bark (Taper Tantrum: April-July 2013)
The data is from Barry Eichengreen and Poonam Gupta, Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets. Following Eichengreen and Gupta, I have measured the exchange rate pressure by the percentage increase in the nominal exchange rate (units of domestic currency per US dollar), though ideally it should be the decline in the inverse of this number. Unlike Eichengreen and Gupta, I have simply added the percentage exchange rate change and the percentage reserve loss for a crude measure of the total effect. For a blog post, I am too lazy to weight the two measures by the inverse of their respective standard deviations (and I am also quite happy with improper linear models).
| Depreciation | Reserve Loss | Total | |
|---|---|---|---|
| Brazil | 12.52 | 1.69 | 14.21 |
| India | 9.98 | 4.77 | 14.75 |
| Indonesia | 3.58 | 13.61 | 17.19 |
| South Africa | 8.96 | 5.42 | 14.38 |
| Turkey | 7.61 | 8.20 | 15.81 |
The FED’s bite (Ongoing since April 2018)
The following data is what I have been able to put together from easily available sources on the internet. The currency depreciation is from Yahoo Finance and covers the period from April 16, 2018 to September 13, 2018. The reserve loss is from end March (or mid April where available) to the latest date for which I could get data clicking through to the data links on the National Summary Data Pages (NSDPs) of the IMF’s Dissemination Standards Bulletin Board (DSBB). Except for Turkey, the data for the rest of the countries is not hopelessly out of date, and for Turkey, the reserve loss is totally swamped by its currency depreciation.
If you have better data, please free to provide that in the comments section.
| Depreciation | Reserve Loss | Total | |
|---|---|---|---|
| Brazil | 22.22 | 0.26 | 22.48 |
| India | 10.46 | 5.90 | 16.36 |
| Indonesia | 8.02 | 6.35 | 14.37 |
| South Africa | 21.36 | -0.00 | 21.36 |
| Turkey | 50.86 | 8.15 | 59.01 |
Posted at 4:14 pm IST on Mon, 17 Sep 2018 permanent link
Categories: international finance, monetary policy
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