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The Effectiveness of Unconventional Monetary Policy in the Euro Area: An Event and Econometric Study

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  • Steve Ambler

    () (ESG, Université du Québec à Montréal, Canada; C.D. Howe Institute, Canada; The Rimini Centre for Economic Analysis, Italy)

  • Fabio Rumler

    () (Economic Analysis Division, Oesterreichische Nationalbank, Austria)

Abstract

We use daily data on government bond yields and market-based inflation expectations (from inflation-linked swaps) to measure the effectiveness of unconventional monetary policy (UMP) in the euro area. We focus on the effects of policy announcements on ex-ante real interest rates, since the main transmission mechanism of monetary policy is through real interest rates and their effect on aggregate demand. We find evidence of significant impacts of UMP announcements of the ECB on real interest rates at maturities of five and ten years that operate mainly by raising inflation expectations. When distinguishing among UMP announcements that exceeded or disappointed market expectations, we find that the former significantly reduced nominal and real interest rates and increased inflation expectations while the latter had the opposite effect.

Suggested Citation

  • Steve Ambler & Fabio Rumler, 2016. "The Effectiveness of Unconventional Monetary Policy in the Euro Area: An Event and Econometric Study," Working Paper series 16-27, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:16-27
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