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Quantitative Easing: What International Capital Markets Reveal Dr. Catherine L. Mann Barbara 54 and Richard M. Rosenberg Professor of Global Finance International Business School, Brandeis University Visiting Scholar, Federal Reserve Bank of Boston CLMann @ Brandeis.edu www.CLMann.com

Rocky Mountain Economic Summit, Jackson Hole July 12, 2013

Perspectives on Quantitative Easing • US purchases of foreign assets • Foreign purchases of US assets

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Emerging Market Concerns 2010: Quantitative easing … influx of cheap dollars into emerging markets is not healthy Kavita Sriram, ET Bureau 11/21, 2010 2011: PIMCO CEO: Federal Reserve's Actions 'Overinflated' Brazil, China (6/2011)

The Huffington Post Harry Bradford 06/09/11

2012: Fed QE Doesn't Change Fundamentals In Big Four Emerging Markets… a problem that QE won’t fix.

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Do QE episodes drive US investment abroad? %#!!!!!"

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Emerging Markets: Perspectives on QE • Hot money and currency volatility concerns … are well founded • Growth and competitiveness issues – Hot money undermines environment for real investment, and hard for policy to respond – Exchange volatility particularly challenging for business

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Emerging Markets: 2013

Quantitative easing: End of the line

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Emerging Market Rout Spells Opportunity (Forbes)

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U.S. Perspectives on QE • Fed purchases of US Treasuries – Fed has been a big buyer – Not just balance sheet size, ‘twist’ impact

• Foreign appetite for US Treasuries – Private investors less appetite w/o QE • And gross flows arbitrage during ‘twist’

– Foreign official still are net holders • But decreasingly China and Japan purchasers 15