The Taper This Time

Authors

Abstract

On November 3, 2021, the Federal Open Market Committee announced that it would reduce the scale of its asset purchases by $15 billion a month starting immediately. Do emerging markets, such as India, need to prepare for a replay of the taper tantrum of 2013? We show that emerging markets, including India, have strengthened their external economic and financial positions since 2013. At the same time, fiscal deficits are much wider, and public debts are much heavier. As U.S. interest rates now begin moving up, servicing existing debts and preventing the debt-to-GDP ratio from rising still further will become more challenging. Either taxes have to be raised or public spending must be cut to generate additional revenues for debt servicing.

Keywords:

Capital Flows, Emerging Markets, Monetary Policy, Tapering, India

Authors Bio

Barry Eichengreen, University of California, Berkeley

Barry Eichengreen is the George C. Pardee and Helen N. Pardee Professor of Economics and Professor of Political Science at the University of California, Berkeley, where he has taught since 1987.

Poonam Gupta, National Council of Applied Economic Research

Poonam Gupta is the Director General of NCAER and a member of the Economic Advisory Council to the Prime Minister (EAC-PM). Before joining NCAER, she was Lead Economist, Global Macro and Market Research, International Finance Corporation (IFC); and Lead Economist for India at the World Bank.

Rishabh Choudhary

Rishabh Choudhary is an independent economist

Published

2022-01-14