Q. ‘Taper Tantrum’ was recently seen in news. Which of the following statements correctly explains the term?
After the 2007-2009 global financial crisis and recession, the US Federal Reserve started a bond-buying programme (known as quantitative easing) to infuse liquidity. With these funds, the investors started investing in global bonds and stocks.
In 2013, the US Federal Reserve decided to reduce (taper) its quantum of a bond-buying programme that led to a sudden sell-off in global bonds and stocks.
As a result, many emerging market economies, that received large capital inflows, suffered currency depreciation and outflows of capital. This is called globally as a ‘taper tantrum‘.