Financial Market Effects of Asset Purchase Programs in Emerging Markets: An Early Assessment

Central banks in some emerging market and developing economies (EMDEs) have employed asset purchase programs, in many cases for the first time, in response to pandemic-induced financial market pressures. Using panel regressions, this paper examines the effects of recent announcements of asset purchase programs (APP) on financial market developments in EMDEs. The results suggest that the asset purchase programs in EMDEs have been more effective at lowering government and private sector bond yields and sovereign CDS than announcements of policy rate cuts and spillovers from advanced-economy asset purchase announcements. The reduction in bond yields driven by APP announcements was largest in economies with higher consumer price inflation, initial bond yields, and CDS spreads and did not result in currency depreciation on average. The effects are consistent with reduced risk premia being a key channel for the operation of EMDE APPs.