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Global financial market impact of the announcement of the ECB's extended asset purchase programme

Author

Listed:
  • Georgiadis, Georgios

    (European Central Bank)

  • Grab, Johannes

    (European Central Bank)

Abstract

We estimate the impact of the ECB’s announcement of the extended asset purchase programme (EAPP) on 22 January 2015 on global equity prices, bond yields and the euro exchange rate. We find that the EAPP announcement benefited global financial markets by boosting equity prices in the euro area and the rest of the world. At the same time, the EAPP announcement caused a depreciation of the euro vis-à-vis advanced and emerging market economy currencies. Comparing the EAPP to previous ECB announcements of unconventional monetary policies, the main channel of transmission of the EAPP announcement to global financial markets was through signalling—the ECB convincingly conveying to market participants that its future monetary policy stance will remain accommodative—rather than through improving confidence (as was the case for the OMT) or through portfolio re-balancing (as for the SMP). Similarly, in contrast to the OMT and the SMP announcements the signaling channel also played a major role for the domestic financial market impact of the EAPP. Cross-country heterogeneities in the global financial market spillovers from the EAPP announcement were linked to differences in economies’ financial openness, exchange rate regime, trade and financial integration with the euro area and their attractiveness for carry trades.

Suggested Citation

  • Georgiadis, Georgios & Grab, Johannes, 2015. "Global financial market impact of the announcement of the ECB's extended asset purchase programme," Globalization Institute Working Papers 232, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:232
    DOI: 10.24149/gwp232
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    References listed on IDEAS

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    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    2. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
    3. 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.
    4. Bauer, Michael D. & Neely, Christopher J., 2014. "International channels of the Fed's unconventional monetary policy," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 24-46.
    5. Michael Ehrmann & Marcel Fratzscher, 2005. "Equal Size, Equal Role? Interest Rate Interdependence Between the Euro Area and the United States," Economic Journal, Royal Economic Society, vol. 115(506), pages 928-948, October.
    6. Ahmed, Shaghil & Zlate, Andrei, 2014. "Capital flows to emerging market economies: A brave new world?," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 221-248.
    7. Kawai, Masahiro, 2015. "International Spillovers of Monetary Policy: US Federal Reserve's Quantitative Easing and Bank of Japan's Quantitative and Qualitative Easing," ADBI Working Papers 512, Asian Development Bank Institute.
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    Citations

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    Cited by:

    1. Alessio Ciarlone & Andrea Colabella, 2016. "Spillovers of the ECB's non-standard monetary policy into CESEE economies," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 34(81), pages 175-190, December.
    2. Carolina Osorio Buitron & Esteban Vesperoni, 2015. "Big Players Out of Synch; Spillovers Implications of US and Euro Area Shocks," IMF Working Papers 15/215, International Monetary Fund.
    3. repec:eee:ecolet:v:159:y:2017:i:c:p:123-127 is not listed on IDEAS
    4. Arteta,Carlos & Kose,Ayhan & Stocker,Marc & Taskin,Temel, 2016. "Negative interest rate policies : sources and implications," Policy Research Working Paper Series 7791, The World Bank.
    5. Martina Cecioni, 2018. "ECB monetary policy and the euro exchange rate," Temi di discussione (Economic working papers) 1172, Bank of Italy, Economic Research and International Relations Area.
    6. Gustavo Adler & Carolina Osorio Buitron, 2017. "Tipping the Scale? The Workings of Monetary Policy through Trade," IMF Working Papers 17/142, International Monetary Fund.
    7. repec:wsi:qjfxxx:v:08:y:2018:i:01:n:s2010139218400025 is not listed on IDEAS
    8. Potjagailo, Galina, 2016. "Spillover effects from euro area monetary policy across the EU: A factor-augmented VAR approach," Kiel Working Papers 2033, Kiel Institute for the World Economy (IfW).
    9. Carolina Osorio Buitron & Gustavo Adler, 2017. "Policy Mix and the US Trade Balance," IMF Working Papers 17/204, International Monetary Fund.
    10. Motto, Roberto & Altavilla, Carlo & Carboni, Giacomo, 2015. "Asset purchase programmes and financial markets: lessons from the euro area," Working Paper Series 1864, European Central Bank.
    11. Bletzinger, Tilman & Wieland, Volker, 2016. "Forward guidance and "lower for longer": The case of the ECB," IMFS Working Paper Series 102, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    12. Potjagailo, Galina, 2017. "Spillover effects from Euro area monetary policy across Europe: A factor-augmented VAR approach," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 127-147.
    13. McQuade, Peter & Falagiarda, Matteo & Tirpák, Marcel, 2015. "Spillovers from the ECB's non-standard monetary policies on non-euro area EU countries: evidence from an event-study analysis," Working Paper Series 1869, European Central Bank.
    14. Marcello Pericoli & Giovanni Veronese, 2018. "Monetary Policy Surprises over Time," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-60, March.
    15. Malte Rieth & Lisa Gehrt, 2016. "What Causes the Delay in Reforms in Europe?," DIW Roundup: Politik im Fokus 99, DIW Berlin, German Institute for Economic Research.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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