impact of tapering on financial conditions overall in the six other countries but not China (where, however, it should be noted that the stock market did decline).<sup>3</sup>

# **3. Overview**

We now proceed to analyzing the entire class of emerging markets. We start with the same set of countries as in Ghosh et al. (2013), to which we add Ghana; Hong Kong SAR, China; Kenya; Ireland; Singapore; and Tanzania. This gives us the universe of countries included in the various definitions of emerging markets. We drop Eurozone countries (Estonia, Greece, Ireland, Italy, Portugal, Slovakia and Spain), since they have no meaningful national exchange rate, as well as countries that use the US dollar as their currency (Ecuador, El Salvador and Panama). We also drop Egypt because it experienced shocks independent of retrenchment. This gives us 53 countries.

Some emerging markets started experiencing effects immediately after the Fed Chairman’s testimony on May 22, and those effects persisted through much of the summer. We therefore calculate cumulative changes in the variables of interest between the end of April and, alternatively, the end of June, the end of July and the end of August.

Table 2 shows that 36 of the 53 countries experienced some exchange rate depreciation between the end of April and the end of June.<sup>4</sup> Even as some of these exchange rates recovered by the end of August, exchange rates for almost 60 percent of the countries remained below the levels at the end of April. The average rate of depreciation was over 6 percent, and exchange rates for half the countries had depreciated by more than 51⁄2 percent.

Panel A of Figure 1 provides additional details on the distribution of exchange rate changes across countries between the end of April and end of July. The largest changes were in Brazil, India, Paraguay, South Africa, and Uruguay. Note that three of the BRICS countries are included in this list. All of these countries experienced exchange rate depreciations of 9 percent or greater during this period, with Brazil having the largest depreciation at 12.5 percent.

Reserves declined for 29 countries between April and July 2013, as shown in Panel B. The countries with the largest declines were the Dominican Republic, Indonesia, Pakistan, Sri Lanka, and Ukraine.<sup>5</sup> In some countries the pace of decline accelerated considerably in August.

Stock markets declined on average as well. We have data for fewer countries for stock market indices (the indices are in nominal local currency, with the exception of Israel, which had data indexed in nominal USD). Twenty-five of the 38 countries for which we have data experienced some decline in their stock markets. The cumulative decline between April and August averaged at 6.9 percent, and the median decline was 6.2 percent, as shown in Panel C of Table 2. Panel C of Figure 1 shows the distribution of the effect on stock markets across countries, between the end of April and end of July. The effect on stock markets is much more

> 3 In addition, bond spreads widened and credit default swap spreads widened in all six cases for which they are available.  Note the preceding footnote.

> 4 We extracted the data from Global Economic Monitoring database of the World Bank, on October 29, 2013. Data form other sources, including Bloomberg, was extracted in the same week.

> 5 Egypt’s foreign reserves rose by 33 percent between the end of April and the end of July. Since this clearly reflected domestic political shocks, we drop it from the sample when proceeding to regression analysis.

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