The Financial and Macroeconomic Effects of OMT Announcements

25 Pages Posted: 6 Aug 2014

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Michele Lenza

European Central Bank (ECB)

Date Written: July 9, 2014

Abstract

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

Altavilla, Carlo and Giannone, Domenico and Lenza, Michele, The Financial and Macroeconomic Effects of OMT Announcements (July 9, 2014). ECB Working Paper No. 1707. Available at SSRN: https://ssrn.com/abstract=2464118

Carlo Altavilla (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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