Taper Tantrum

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Definition of 'Taper Tantrum'

A taper tantrum is a sudden and sharp decline in the value of an asset, typically a bond, that occurs when investors become concerned about the future value of the asset. This can be caused by a number of factors, such as a change in monetary policy or an increase in interest rates.

Taper tantrums are often associated with emerging market economies, as these countries are more vulnerable to changes in investor sentiment. When investors lose confidence in an emerging market economy, they may sell off their assets, which can lead to a sharp decline in the value of the currency and stock market.

Taper tantrums can also have a negative impact on the global economy. If investors lose confidence in emerging markets, they may also start to sell off their assets in developed markets, which can lead to a global recession.

The term "taper tantrum" was first used in 2013, when the Federal Reserve began to taper its quantitative easing program. This led to a sharp decline in the value of emerging market assets, and the term has since been used to describe similar episodes in other markets.

Taper tantrums can be a difficult phenomenon to predict and manage. However, there are a number of things that governments and central banks can do to mitigate the risk of a taper tantrum. These include:

* Maintaining a strong fiscal position.
* Keeping interest rates low.
* Communicating with investors about their plans for monetary policy.

By taking these steps, governments and central banks can help to reduce the risk of a taper tantrum and protect their economies from the negative effects of a sudden decline in asset values.

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