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Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy

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Listed:
  • Martin Feldkircher

    () (Oesterreichische Nationalbank (OeNB))

  • Thomas Gruber

    () (Oesterreichische Nationalbank (OeNB))

  • Florian Huber

    () (Department of Economics, Vienna University of Economics and Business)

Abstract

As a consequence of asset purchases by the European Central Bank (ECB), longer-term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model with stochastic volatility and propose a novel mixture of zero impact and sign restrictions that we impose on the cross-section of the data. Both shocks generate positive and significant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-a-vis the euro (trade channel). While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.

Suggested Citation

  • Martin Feldkircher & Thomas Gruber & Florian Huber, 2017. "Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy," Department of Economics Working Papers wuwp248, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp248
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Luca Dedola & Georgios Georgiadis & Johannes Gräb & Arnaud Mehl, 2018. "Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates," GRU Working Paper Series GRU_2018_024, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Hajek, Jan & Horvath, Roman, 2018. "International spillovers of (un)conventional monetary policy: The effect of the ECB and the US Fed on non-euro EU countries," Economic Systems, Elsevier, vol. 42(1), pages 91-105.
    3. Jef Boeckx & Maarten Dossche & Alessandro Galesi & Boris Hofmann & Gert Peersman, 2019. "Do SVARs with sign restrictions not identify unconventional monetary policy shocks?," Working Papers 1926, Banco de España;Working Papers Homepage.
    4. Andrea Colabella, 2019. "Do the ECB’s monetary policies benefit emerging market economies? A GVAR analysis on the crisis and post-crisis period," Temi di discussione (Economic working papers) 1207, Bank of Italy, Economic Research and International Relations Area.
    5. Andrejs Zlobins, 2019. "Country-Level Effects of the ECB's Expanded Asset Purchase Programme," Working Papers 2019/02, Latvijas Banka.
    6. Feldkircher, Martin & Lukmanova, Elizaveta & Tondl, Gabriele, 2019. "Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment," Department of Economics Working Paper Series 289, WU Vienna University of Economics and Business.
    7. Sona Benecka & Ludmila Fadejeva & Martin Feldkircher, 2018. "Spillovers from Euro Area Monetary Policy: A Focus on Emerging Europe," Working Papers 2018/2, Czech National Bank.
    8. Martin Feldkircher & Kazuhiko Kakamu, 2018. "How does monetary policy affect income inequality in Japan? Evidence from grouped data," Papers 1803.08868, arXiv.org.
    9. Feldkircher, Martin & Poyntner, Philipp & Schuberth, Helene, 2019. "Effects of the ECB's Unconventional Monetary Policy on Real and Financial Wealth," Department of Economics Working Paper Series 286, WU Vienna University of Economics and Business.
    10. Ernest Gnan & Claudia Kwapil & Maria Teresa Valderrama, 2018. "Monetary policy after the crisis: mandates, targets, and international linkages," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/18, pages 8-33.
    11. Martin Feldkircher & Pierre L. Siklos, 2018. "Global inflation dynamics and inflation expectations," CAMA Working Papers 2018-60, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    Euro area monetary policy; quantitative easing; spillovers;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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