Central bank asset purchase programs in emerging market economies

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We investigate the impact of Asset Purchase Programs by 14 EME central banks during COVID-19, finding a statistically significant effect in compressing bond spreads vis-à-vis the US. A counterfactual analysis shows that without APPs, EME bond spreads would have been higher. Country-specific VAR impulse response functions indicate that a shock imposed on asset purchases becomes persistent on bond spreads after around 5 – 10 days, with a peak effect of around 40 basis points. Persistent stabilizing effects are also found on exchange rates and capital flow volatility, while stock markets and inflation expectations are overall not affected by the APPs.