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Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy

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  • Feldkircher, Martin
  • Gruber, Thomas
  • Huber, Florian

Abstract

As a consequence of asset purchases by the European Central Bank (ECB), longer- term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model that uses shrinkage priors coupled with stochastic volatility. We find positive and signif- icant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-a-vis the euro (trade channel). That both shocks yield rather similar results adds narrowing longer-term yields in the euro area as a viable alternative to the pol- icymakers' toolkit. While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.

Suggested Citation

  • Feldkircher, Martin & Gruber, Thomas & Huber, Florian, 2017. "Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168111, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc17:168111
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    More about this item

    Keywords

    Euro area monetary policy; quantitative easing; spillovers;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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