The Financial and Macroeconomic Effects of OMT Announcements
25 Pages Posted: 6 Aug 2014
Date Written: July 9, 2014
This study evaluates the macroeconomic effects of Outright Monetary Transaction (OMT) announcements by the European Central Bank (ECB). Using high-frequency data, we find that OMT announcements decreased the Italian and Spanish 2-year government bond yields by about 2 percentage points, while leaving unchanged the bond yields of the same maturity in Germany and France. These results are used to calibrate a scenario in a multi-country model describing the macro-financial linkages in France, Germany, Italy, and Spain. The scenario analysis suggests that the reduction in bond yields due to OMT announcements is associated with a significant increase in real activity, credit, and prices in Italy and Spain with relatively muted spillovers in France and Germany.
Keywords: Outright Monetary Transactions, event study, news, multi-country vector autoregressive model
JEL Classification: E47, E58, C54
Suggested Citation: Suggested Citation