How Much Did the ECB Really Contribute to Ending the Sovereign Debt Crisis?

Abstract

I show that once one incorporates country-specific yields into the identification of monetary factors for the European Central Bank, a new factor arises which plays a quantitatively important role in explaining the end of the sovereign debt crisis and the resulting convergence in economic outcomes across the Euro block. Specifications that exclude this novel factor instead imply that the central bank played little role in ending the crisis. I argue that this new factor reflects ECB communications that respond to certain countries' conditions beyond their share of Euro area activity, mostly during the crisis period.

Keywords: Monetary policy, Currency union, European Central Bank, Event Study, High Frequency Identification

JEL Classification: C38, E44, E52, E58, F45, G14