The Impact Of The Withdrawal Of QE On The Emerging Economies

In 2008, after the outbreak of the financial crisis, the Fed had implemented several rounds of QE policies to provide liquidity to the market. The government wanted to put the long-term interest rates down and to alleviate the deterioration in the real economy and deflation pressure. The Fed’s implementation of the four round of QE policies had achieved obvious effect. These measures saved the US financial market on the verge of collapse, alleviated the pressure of economy and promoted the employment. But QE policies had taken great influence on the emerging economies, such as China. With the improvement in the US’s economic situation, QE policies could not be a long-term use as a non-conventional mean of regulation. December 2014, the Fed announced to be out of the fourth round of quantitative easing monetary policy. It indicated that a period of six years of the Fed’s QE policies came to an end. Although the current U.S. economy has recovered, the emerging countries’ economy also has a sluggish recovery. At this point, with the liquidity withdrawal, international capital will flow back to the US. The emerging markets will be undoubtedly worse.In 2015, Brazil and Russia represent a recession. South Korea, South Africa and Argentina are barely maintain economic growth in the edge of a recession. The economic performance of Mexico, Saudi Arabia and Turkey shows slightly better, but is no longer the pomp of rapid growth. Indonesia and China’s economic growth are still maintained at a higher level, but the downturn trend has been formated. The only bright spot is India. Its economy is still in a strong growth momentum. Overall, the economic growth of emerging economies would be into a economic development of the "new normal". There are many reasons for this result which contains many factors, such as internal demand,investment, net exports and net inflow of FDI.The Fed exiting QE quantitative impacts on emerging economies mainly through two channels: First, the impact of capital flows. Second, the impact of the international market price. Therefore, emerging economies should cope with these problems by taking the following six ways: one is to tighten the monetary policy; two is to take the foreign exchange buffer policy; three is to adopt macro prudential supervision policy; four is to adopt policies to manage capital flows; five is to create international monetary supply mechanism; six is to strengthen the emerging economies of regional monetary cooperation. Different emerging economy have to face a different situation. These policies are not applicable to every country. Therefore, the emerging countries should choose the appropriate measures according to the national conditions. But regardless of what kinds of policies interventions couldn’t fundamentally solve the problem. Only a good country’s economic fundamentals could play a decisive role.