El informe de la Comisión sobre la responsabilidad de los autores de la guerra

Tables B.7a - B.7c examine the impact of the monetary surprises on holdings, asset prices and flows across the three sub-periods: the pre-crisis period, the QE period and the unwinding period. Panel A presents the results from estimating a parsimonious version of the benchmark specification

in (12) by restricting the independent variables to the set of monetary policy shocks by sub-period and an AR(1) term that captures any persistence in the dependent variables. Columns 1-3 present results for debt positions, flows, and valuations, respectively. Columns 4-6 present results for the analogous measures for equity. Finally, column 7 shows the results for the bilateral USD exchange rate change. Consistent with the previous literature, both holdings and flows display significant autocorrelation as shown by the positive coefficients on the lagged dependent variables.

In the pre-crisis period, changes in the five-year Treasury futures rates (FF5) corresponding to FOMC announcement dates are generally inversely correlated to bond and equity positions and monthly valuation changes as well as equity flows across emerging markets. This pattern is consis- tent with the portfolio balance channel in hypothesis #1. That is, a loosening U.S. monetary policy shock may be associated with emerging market portfolio inflows as foreign investors substitute out of long-term U.S. bonds. Alternatively, a signal that todays loose monetary policy portends future loosening in the U.S. can also drive a negative association between monetary policy shocks and portfolio flows and valuations (hypothesis #2). Conversely, tightening surprises, on average, lead to increased outflows to emerging markets.

In the QE period, while five-year Treasury Futures (FF5) surprises are inversely and signifi- cantly correlated with bond position and valuation changes (Column 3), we do not see evidence of statistically significant changes in debt flows. Equity positions and valuations are also inversely correlated with the FF5 monetary surprise measure (Columns 4 and 6). Given that interest rates fell dramatically during this period and the U.S. quickly entered the ZLB regime, this pattern sug- gests that U.S. investors emerging market equity holdings rose significantly during the QE period but via increased valuations rather than actual flows. The evidence is therefore partially consistent with the portfolio rebalancing hypothesis #1 in that reduced yields and risk premia in the U.S. are correlated with increases in emerging market valuations (prices) but not flows (quantities).

While it may seem a little puzzling that the flow measures do not exhibit statistical significance for either debt or equity, one explanation may be that there is more noise in the measured flows data during periods of elevated volatility. On the other hand, it is plausible that there was indeed

no detectable increase in flows because the positions simply inflated due to improved expectations for the valuation of emerging market firms-consistent with the daily bond and equity return re- sults presented earlier in Section 3. Many large emerging markets appeared to weather the crisis well, and general optimism about economic and cash flow growth would contribute to increased valuations for emerging market firms.

Alternatively, a lower level of required risk compensation (global risk aversion) consistent with the reduced term premia around these shocks documented above would generate such a valuation effect. Given that our flow variables of interest are specific to the United States, the valuation changes could also be attributed to increased domestic investment or increased investment from other locales. Overall, during the QE period there appears to be a significant and consistent rela- tionship between FF5 surprises for both emerging market debt and equity valuations.

While the introduction of unconventional monetary policy (QE, in particular) has received a tremendous amount of attention, policy normalization after such a period is equally interesting. We find that the unwinding, or taper, period presents a significant shift in the results. We observe in- verse and statistically significant coefficients across alternative measures of debt and equity flows, positions and valuation changes, suggesting that the normalization period was associated with significant outflows from emerging markets, perhaps even more consistent with the hypothesized portfolio balance channel (in reverse). It is also noteworthy that the magnitudes of the coefficients for debt positions, flows, valuations and for equity flows associated with the unwinding period are higher than both the pre-crisis and the QE periods. The levels of statistical significance across all specifications in the taper period are consistent at the 1% level.

The coefficient estimates on the FF5 surprises during the taper period suggest that the market interpreted the unwinding of unconventional monetary policy as a signal that the U.S. economy was returning to normalcy and, consistent with both the signaling and portfolio balance channels, expected monetary tightening in the U.S. both in the near term and ongoing in the future led to a massive retrenchment from emerging markets.

measures is double or even triple the magnitude of the effect for debt. It is striking that in both the QE and tapering periods, valuation effects contribute more heavily to position changes than do active reallocations (flows). Further, in the unwinding period, the flows become a statically significant contributor to position changes. Recall that in the QE period, changes in positions are attributable almost entirely to valuation changes. Taken together, an important finding is that U.S. monetary policy surprise spillovers thus appear asymmetricacross the QE and taper periods with much stronger effects during tightening than easing.

Finally, we turn to the effects of U.S. monetary policy shocks on emerging markets exchange rates. We observe that U.S. policy shocks are inversely correlated with emerging market currency fluctuations during unconventional monetary policy periods. This is particularly true during the later taper period. For example, during the QE period, the average monetary policy shock was negative (or a loosening shock), and is associated with emerging market currency appreciation. In contrast, during the taper period positive (tightening) U.S. policy shocks are associated with large and significant emerging market currency depreciations. In sum, it appears that the role for U.S. monetary policy shocks extends to capital flows and local markets valuations as well as exchange rate changes.25 The results from the benchmark specification are consistent with the impact of the same shocks on US$ and local currency returns earlier in the paper in Table B.4.