Change is Inevitable, Progress is Optional: Impact of FED Tapering Announcements on North African Equity Markets

Abstract

We propose one of the first empirical evaluations of the transmission of the 2013–2015 Federal reserve Tapering announcements of assets purchases, to the stock markets of the three north African countries with the most advanced financial development: Egypt, Morocco, and Tunisia. We use two alternative announcement effects dummy variables: one constructed from econometric tests of individual announcements, the other constructed from the media coverage. In spite of a relatively low level of financial integration, the results of panel data tests show a significant negative impact of announcements, generally associated with the Federal Open Market Committee (FOMC) meetings rather than minutes. This result is in line with the literature on the domestic and international announcement effects of the information released by the FOMC, in the absence of discordance of tone between the meeting statement and the minutes. From the perspective of policy recommendations, the study of the interaction of Tapering announcements with domestic fundamentals shows interesting results. Fundamentals with favorable direct effects on equity markets dynamics could indirectly increase their vulnerability to announcement effects. Inflation, domestic investment and commercial openness show significant interaction effects in the opposite sense of their direct effects, some of which are superior to the direct effects.

Keywords:

• North Africa
• financial development
• financial integration
• monetary policy transmission
• event study
• media coverage

JEL Classifications:

• F62
• F65

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Note that contrary to most of the literature on this topic, for example Aizenman et al. (2014) or Eichengreen & Gupta (2015), we do not need to use a time lag, because we do not work on Asian countries.

Additional information

Funding

This research was partially funded by grant CRISHIS (Pôle ESMED, Université de Toulon, France).

Notes on contributors

Giscard Assoumou-Ella

Giscard Assoumou-Ella holds a PhD in Economics from the University of Toulon in France. He has expertise in macroeconomics modeling, forecasting, and policymaking, political economics of development, and applied econometrics. Currently, he is Professor of Economics at Omar Bongo University, researcher at CIREGED, Omar Bongo University and associate researcher at LEAD, University of Toulon. He works in the areas of economic and econometric modeling applied to economic and financial stability, and economic development in Africa. His papers have been published in international journals including Economics Bulletin, Feminist Economics, Research in International Business and Finance, African Development Review, etc.

Cécile Bastidon

Cécile Bastidon is currently Associate Pr. at the Université de Toulon (France). Her research focuses on international financial integration issues in advanced and developing economies. Her empirical works on financial development focus on the Mediterranean and African economies. She is also a member of the Cliometry and Complexity team (CAC-IXXI, ENS Lyon, France), where she works on the network dimension of financial globalization in a cliometric perspective.

Bastien Bonijoly

Bastien Bonijoly holds a Ph.D. from the University of Toulon in France. He is specialized in Unconventional Monetary Policies and their exit as well as their effect on other countries. He is currently an Associate for J.P. Morgan (Edinburgh, United Kingdom), specialized in Data visualization and a member of the LEAD, University of Toulon. Email adress: [email protected].