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The Financial and Macroeconomic Effects of the OMT Announcements

Author

Listed:
  • Carlo Altavilla

    (European Central Bank)

  • Domenico Giannone

    (Federal Reserve Bank of New York and CEPR)

  • Michele Lenza

    (European Central Bank and ECARES-ULB)

Abstract

This paper evaluates the macroeconomic effects of the announcements of the European Central Bank’s Outright Monetary Transactions (OMT) program. Using high-frequency data, we find that the OMT announcements decreased the Italian and Spanish two-year government bond yields by about 2 percentage points, while leaving unchanged the bond yields of the same maturity in Germany and France. These results are used to calibrate a scenario in a multi-country model describing the macrofinancial linkages in France, Germany, Italy, and Spain. The scenario analysis suggests that the reduction in bond yields due to the OMT announcements is associated with a significant increase in real activity, credit, and prices in Italy and Spain, with some relatively muted spillovers in France and Germany.

Suggested Citation

  • Carlo Altavilla & Domenico Giannone & Michele Lenza, 2016. "The Financial and Macroeconomic Effects of the OMT Announcements," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 29-57, September.
    • Handle: RePEc:ijc:ijcjou:y:2016:q:3:a:1
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    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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