An Analysis Of The Impact Of Fed 's Interest Rate Segmentation On Emerging Economies

In the last 3 times of tight monetary policy carried out by the Federal Reserve that rising interest rate continuously, the financial markets of emerging economies were affected in varying degrees. However, there were some unexpected changes in the market that didn’t match the theoretical foundation, like the devaluation of U.S. dollar and the price of crude oil going up. The timing of the impacts was also different. The reason was there were various factors having influences on the performance of global financial market and emerging economies, including expectation, the economic structure of economies, the situation of world economy, the supply and demand of bulk commodity, and the effect of rising interest rate. So, the differences in this interest rate rising period should be noticed that the economic circumstances have changed a lot and the expectation of rising interest rate has been for a long time. The turmoil of the market began earlier, and the tendency was coincidence with the theoretical analysis. The effect of expectation must have played an important role in it. In this way, the emerging economies are facing with currency depreciation, capital outflow, drain on foreign exchange reserves and stock market crash. Following measures could be helpful under the circumstances: improving economic structure, reinforcing the supervision of capital market, keeping a flexible policy on foreign exchange and sufficient reserves, and paying close attention to the policy transformation in major countries to respond to the impact actively. In addition, China also needs to control the pace of reform, to make sure the economic fundamentals apply to further market opening.