A New Wave of Ecb's Unconventional Monetary Policies: Domestic Impact and Spillovers

34 Pages Posted: 8 Feb 2018 Last revised: 21 Mar 2018

See all articles by Richard Varghese

Richard Varghese

Graduate Institute of International and Development Studies (IHEID)

Y. Sophia Zhang

International Monetary Fund (IMF)

Date Written: January 2018

Abstract

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.

Keywords: Yield Curve, Quantitative Easing, Event Study, General, General

JEL Classification: E40, E50

Suggested Citation

Varghese, Richard and Zhang, Y. Sophia, A New Wave of Ecb's Unconventional Monetary Policies: Domestic Impact and Spillovers (January 2018). IMF Working Paper No. 18/11, Available at SSRN: https://ssrn.com/abstract=3120338

Richard Varghese (Contact Author)

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Y. Sophia Zhang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
56
Abstract Views
340
rank
452,160
PlumX Metrics