A New Wave of ECB’s Unconventional Monetary Policies: Domestic Impact and Spillovers

January 24, 2018

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Richard Varghese, and Yuanyan S Zhang. A New Wave of ECB’s Unconventional Monetary Policies: Domestic Impact and Spillovers, (USA: International Monetary Fund, 2018) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

ECB President Draghi’s Jackson Hole speech in August 2014 arguably marked a new phase of unconventional monetary policies (UMPs) in the euro area. This paper examines the market impact and tranmission channels of this new wave of UMPs using a modified event study framework. They are found to have a more prominent impact on inflation expectations and exchange rates compared to the earlier UMP announcements. The impact on bank equity, however, is less significant in part due to narrowing profit margin in a low interest rate environment; and the marginal effect on sovereign spread compression has diminished. By extracting components of monetary policy shocks from the yield curve, we find that the traditional signaling channel of the monetary policy transmission continued to play an important role, but the portfolio rebalancing channel became more important in the new phase. Spillovers to non-euro area EU countries (the Czech Republic, Denmark, Poland, and Sweden) are transmitted mainly through the portfolio rebalancing channel, largely affecting sovereign yields and exchange rates.

Subject: Banking, Bond yields, Financial institutions, Financial services, Monetary policy, Sovereign bonds, Stocks, Unconventional monetary policies, Yield curve

Keywords: Bank equity, Bond yields, Event Study, Factor, Inflation expectation, Market, Market factor, Monetary policy, Monetary policy announcement, Monetary policy surprise, QE announcement, Quantitative Easing, Signal factor, Sovereign bonds, Stocks, Unconventional monetary policies, WP, Yield Curve

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/011
Stock No:

WPIEA2018011
ISBN:

9781484338544
ISSN:

1018-5941

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