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The Impact of the ECB’s Conventional and Unconventional Monetary Policies on Stock Markets

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  • Reinder Haitsma
  • Deren Unalmis
  • Jakob de Haan

Abstract

Using an event study method, we examine how stock markets respond to the policies of the European Central Bank during 1999-2015. We use market prices of futures (government bonds) to identify surprises in (un)conventional monetary policy. Our results suggest that especially unconventional monetary policy surprises affect the EURO STOXX 50 index. We also find evidence for the credit channel, notably for unconventional monetary policy surprises. Our results also suggest that value and past loser stocks show a larger reaction to monetary policy surprises. These results are confirmed if identification of monetary policy surprises is based on the Rigobon-Sack heteroscedasticity approach.

Suggested Citation

  • Reinder Haitsma & Deren Unalmis & Jakob de Haan, 2016. "The Impact of the ECB’s Conventional and Unconventional Monetary Policies on Stock Markets," Working Papers 1605, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1605
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    Cited by:

    1. repec:eee:jmacro:v:55:y:2018:i:c:p:46-63 is not listed on IDEAS
    2. Chi Hyun Kim & Lars Other, 2019. "The Short-Run Effect of Monetary Policy Shocks on Credit Risk: An Analysis of the Euro Area," Discussion Papers of DIW Berlin 1781, DIW Berlin, German Institute for Economic Research.
    3. Pacicco, Fausto & Vena, Luigi & Venegoni, Andrea, 2019. "Market reactions to ECB policy innovations: A cross-country analysis," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 126-137.
    4. repec:eco:journ2:2019-02-1 is not listed on IDEAS
    5. Adam Elbourne & Kan Ji & Sem Duijndam, 2018. "The effects of unconventional monetary policy in the euro area," CPB Discussion Paper 371, CPB Netherlands Bureau for Economic Policy Analysis.
    6. repec:gei:jnlfer:v:3:y:2018:i:2:p:2-23 is not listed on IDEAS
    7. Helmut Lütkepohl & Aleksei Netšunajev, 2018. "The Relation between Monetary Policy and the Stock Market in Europe," Econometrics, MDPI, Open Access Journal, vol. 6(3), pages 1-14, August.
    8. Mnasri, Ayman & Nechi, Salem, 2016. "Impact of terrorist attacks on stock market volatility in emerging markets," Emerging Markets Review, Elsevier, vol. 28(C), pages 184-202.
    9. Nakabayashi, Masaki, 2017. "Contained crisis and socialized risk," Research in International Business and Finance, Elsevier, vol. 40(C), pages 231-241.
    10. repec:eee:deveco:v:134:y:2018:i:c:p:16-27 is not listed on IDEAS
    11. De Rezende, Rafael B. & Ristiniemi, Annukka, 2018. "A shadow rate without a lower bound constraint," Working Paper Series 355, Sveriges Riksbank (Central Bank of Sweden).
    12. Hipòlit Torró, 2019. "The Response of European Energy Prices to ECB Monetary Policy," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 1-9.
    13. Ralf Fendel & Frederik Neugebauer, 2018. "Country-Specific Euro Area Government Bond Yield Reactions to ECB’s Non-Standard Monetary Policy Announcements," WHU Working Paper Series - Economics Group 18-02, WHU - Otto Beisheim School of Management.
    14. repec:eee:jimfin:v:78:y:2017:i:c:p:21-43 is not listed on IDEAS
    15. Adam Elbourne & Kan Ji, 2019. "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?," CPB Discussion Paper 391, CPB Netherlands Bureau for Economic Policy Analysis.
    16. Girardi, Daniele & Bowles, Samuel, 2018. "Institution shocks and economic outcomes: Allende's election, Pinochet's coup and the Santiago stock market," Journal of Development Economics, Elsevier, vol. 134(C), pages 16-27.

    More about this item

    Keywords

    Monetary policy surprises; Stock prices; Event studies approach; Identification through heteroscedasticity;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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

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