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The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

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  • Hohberger, Stefan
  • Priftis, Romanos
  • Vogel, Lukas

Abstract

This paper estimates an open-economy dynamic stochastic general equilibrium (DSGE) model with Bayesian techniques to provide a structural empirical evaluation of the macroeconomic effects of the European Central Bank's (ECB's) quantitative easing (QE) programme. Allowing for cross-border holding of government debt and using data on government debt stocks and yields across maturities, we identify the parameters governing portfolio rebalancing in the private sector. We rely on a methodological extension that measures the non-linear contribution of QE in shock decompositions under an occasionally binding constraint (zero lower bound). Our results suggest an average contribution of ECB QE to annual Euro Area GDP growth and CPI inflation in 2015–18 of 0.3 and 0.5 percentage points, respectively, with a maximum impact in 2016.

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  • Hohberger, Stefan & Priftis, Romanos & Vogel, Lukas, 2019. "The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:dyncon:v:108:y:2019:i:c:s0165188919301538
    DOI: 10.1016/j.jedc.2019.103756
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    Cited by:

    1. Matthias Burgert & Werner Roeger & Janos Varga & Jan in 't Veld & Lukas Vogel, 2020. "A Global Economy Version of QUEST: Simulation Properties," European Economy - Discussion Papers 2015 - 126, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Gerke, Rafael & Giesen, Sebastian & Kienzler, Daniel, 2018. "Uncertainty about QE effects when an interest rate peg is anticipated," Discussion Papers 12/2018, Deutsche Bundesbank.
    3. Hohberger, Stefan & Priftis, Romanos & Vogel, Lukas, 2019. "The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 108(C).
    4. Sarah Mouabbi & Jean‐Guillaume Sahuc, 2019. "Evaluating the Macroeconomic Effects of the ECB's Unconventional Monetary Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(4), pages 831-858, June.
    5. Darracq Pariès, Matthieu & Papadopoulou, Niki X., 2020. "On the credit and exchange rate channels of central bank asset purchases in a monetary union," Economic Modelling, Elsevier, vol. 91(C), pages 502-533.
    6. Margaux MacDonald & Michał Ksawery Popiel, 2020. "Unconventional Monetary Policy in a Small Open Economy," Open Economies Review, Springer, vol. 31(5), pages 1061-1115, November.
    7. Croitorov, Olga & Giovannini, Massimo & Hohberger, Stefan & Ratto, Marco & Vogel, Lukas, 2020. "Financial spillover and global risk in a multi-region model of the world economy," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 185-218.
    8. Nicoletta Batini & Alessandro Cantelmo & Giovanni Melina & Stefania Villa, 2020. "How Loose, how tight? A measure of monetary and fiscal stance for the euro area," Temi di discussione (Economic working papers) 1295, Bank of Italy, Economic Research and International Relations Area.
    9. Grahame Johnson & Sharon Kozicki & Romanos Priftis & Lena Suchanek & Jonathan Witmer & Jing Yang, 2020. "Implementation and Effectiveness of Extended Monetary Policy Tools: Lessons from the Literature," Discussion Papers 2020-16, Bank of Canada.
    10. Lie, Denny, 2020. "Implications of state-dependent pricing for DSGE model-based policy analysis in Indonesia," Working Papers 2020-08, University of Sydney, School of Economics.
    11. Serdar Kabaca & Renske Maas & Kostas Mavromatis & Romanos Priftis, 2020. "Optimal quantitative easing in a monetary union," DNB Working Papers 697, Netherlands Central Bank, Research Department.
    12. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2017. "Für eine zukunftsorientierte Wirtschaftspolitik. Jahresgutachten 2017/18," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201718, September.
    13. Hristov, Nikolay & Hülsewig, Oliver & Scharler, Johann, 2020. "Unconventional monetary policy shocks in the euro area and the sovereign-bank nexus," Discussion Papers 19/2020, Deutsche Bundesbank.
    14. Harrison, Richard, 2017. "Optimal quantitative easing," Bank of England working papers 678, Bank of England.
    15. Hohberger, Stefan & Priftis, Romanos & Vogel, Lukas, 2020. "The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model," Journal of Banking & Finance, Elsevier, vol. 113(C).
    16. Matthieu Darracq-Pariès & Niki Papadopoulou, 2020. "Balance Sheet Policies in a Large Currency Union: A Primer on ECB Non-Standard Measures since 2014," Revue d'économie politique, Dalloz, vol. 130(2), pages 171-230.

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    More about this item

    Keywords

    Bayesian estimation; Open-economy DSGE model; Portfolio rebalancing; Quantitative easing; Zero lower bound;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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