The Financial Market Effects of the ECB's Balance Sheet Policies

30 Pages Posted: 10 Oct 2015

See all articles by Vivien Lewis

Vivien Lewis

Research Centre; KU Leuven

Markus Roth

Deutsche Bundesbank

Date Written: September 24, 2015

Abstract

The European Central Bank’s balance sheet policies have been criticized as ineffective or even harmful to the economy. This paper aims at gauging the effects on financial markets, the banking sector and lending to non-financial firms. Using a structural vector autoregression analysis, we find that balance sheet innovations help to decrease financial stress, stock market risk and default rates initially. However, these beneficial effects on financial markets are overturned in the medium run. Credit expands significantly and persistently. While output rises immediately, the positive effect is short-lived and economically small. Prices do not respond significantly to the shock.

Keywords: Balance sheet, unconventional monetary policy, central bank, shock identification, VAR

JEL Classification: C32, E44, E52, E58

Suggested Citation

Lewis, Vivien and Roth, Markus, The Financial Market Effects of the ECB's Balance Sheet Policies (September 24, 2015). Available at SSRN: https://ssrn.com/abstract=2671763 or http://dx.doi.org/10.2139/ssrn.2671763

Vivien Lewis (Contact Author)

Research Centre ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

KU Leuven ( email )

Oude Markt 13
Leuven, 3000
Belgium

Markus Roth

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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