Study On The Impact Of The Fed’s Rate Increase On Emerging Market Economies From A Financial Crisis Perspective

There have been five rounds of the Fed’s rate-rise cycles since the early 1980 s,leading economic fluctuations and even financial crises in emerging markets over and over again.It is beneficial for emerging market economies to cope with external monetary policies that we research how the Fed’s rate increase has an impact on emerging markets systematically.In December 2015,the Fed announced at the FOMC meeting that the US federal fund target rate was raised by 25 basis points,initiating a new round of the rate-hike cycle.Following the withdrawal of the quantitative easing policy,the current cycle is different from the past ones.With the research of past cycles,we are capable of understanding how the present cycle influences China.From a financial crisis perspective,this article examines the transmitting path of how rate-rise cycles influence emerging market economies and the internal causes of financial crises in the emerging market.Firstly,the paper conducts a history review of the Fed’s rate-rise cycles and concerned financial crises in emerging markets,studying the background and the market reaction of last three rate-hike cycles,such as structural changes of emerging markets in Mexico Peso Crisis and Southeast Asian Financial Crisis.Then,the thesis summarizes the transmitting paths,through which the Fed’s rate-hike cycles have an impact on emerging markets.It studies the profit model of the carry trade and reveals the risk of that trade in the long term through analyzing the fluctuation of its profit.Furthermore,the paper analyzes the internal causes of these crises,finding that it is the trade deficit,the undue structural of external debts,and foreign exchange reserves insufficiency that bring about financial crises.Finally,the article researches the particularity of the current rate-hike cycle and its influence on the dollar exchange rate,analyzes internationalcapital outflow pressure in China through constructing spot foreign net exchange settlement index,and makes correspondent policy recommendations.