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On the financial market impact of euro area monetary policy: A comparative study before and after the Global Financial Crisis

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  • Collingro, Franziska
  • Frenkel, Michael

Abstract

Using daily data from thirteen euro area and four non-euro countries covering the years 2000 to 2018, we explore whether the Global Financial Crisis 2008–2010 and the introduction of unconventional monetary policy measures has led to a change in the financial market impact of euro area monetary policy. For this purpose, we construct a conservative measure of monetary policy innovations based on the heteroscedasticity-approach of Rigobon and Sack (2004), and investigate the response of national and euro-wide equity indices, derived volatility indices, as well as of government bond yields. We find that financial market participants respond more strongly to monetary policy after the Global Financial Crisis. Moreover, we find that cross-country differences in the responsiveness of government bond yields correlate with average national unemployment rates and with inflation rates, suggesting that monetary policy communication was more effective in countries that had faced a severe economic downturn.

Suggested Citation

  • Collingro, Franziska & Frenkel, Michael, 2020. "On the financial market impact of euro area monetary policy: A comparative study before and after the Global Financial Crisis," Global Finance Journal, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:glofin:v:45:y:2020:i:c:s1044028319300298
    DOI: 10.1016/j.gfj.2019.100480
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    Cited by:

    1. Shan, Yimin & Chen, Yang & Xiao, Yajun, 2023. "Monetary policy as market stabilizer in the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 55(PB).
    2. Deev, Oleg & Plíhal, Tomáš, 2022. "How to calm down the markets? The effects of COVID-19 economic policy responses on financial market uncertainty," Research in International Business and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Euro area; Financial markets; Global Financial Crisis; Monetary policy;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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