Quantative Easing and Its Effect on Inflation of BRICS+T Countries
Keywords:Quantitative easing, inflation, BRICS, Fourier causality
This study explores the effect of quantitative easing in the U.S. on inflation of BRICS+T countries from the onset of the program implementation through 2019. Using monthly data of broad money supply of M2 of the U.S. and inflation rates of BRICS+T countries, a Fourier Toda-Yamamoto causality test is applied to find a causal effect. The causality test results suggest that, during and after the quantitative program, there is no significant inflationary pressure due to quantitative easing for major BRICS+T countries with the exception of South Africa where the quantitative easing seems to have a causal effect. The reason why excess money supplies due to quantitative easing had no effect on price level is thought to be due two factors. The first one is that extra liquidity did not prompted banks to lend more as loans and the second, as share prices fell to very low levels after the global crisis, extra liquidity believed to be shifted to stocks. Further, in addition to traditional ADF and PP unit root tests, the Fractional Fourier unit root test results too propose the existence of inflation hysteresis for major emerging economies.
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