RBI's recent bulletin noted that taper of large-scale asset purchase programmes initiated by the Fed in response to the adverse economic consequences associated with macroeconomic shocks has the potential to significantly impact the financial market variables in emerging market economies. However, event study results indicate that the 2021 Taper announcement was less severe as compared to Taper Tantrum of 2013 in terms of its impact on Indian bond yields and spreads. Empirical analysis using a GARCH framework suggests a muted impact of Taper 2 announcement on financial market volatilities which could be a result of India's stronger external position in 2021 as compared to 2013.
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