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

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  • Feldkircher, Martin
  • Gruber, Thomas
  • Huber, Florian

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 that uses shrinkage priors coupled with stochastic volatility. We find positive and signif- icant 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). That both shocks yield rather similar results adds narrowing longer-term yields in the euro area as a viable alternative to the pol- icymakers' toolkit. 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

  • Feldkircher, Martin & Gruber, Thomas & Huber, Florian, 2017. "Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168111, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc17:168111
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    References listed on IDEAS

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    Cited by:

    1. Luca Dedola & Georgios Georgiadis & Johannes Grab & Arnaud Mehl, 2018. "Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates," Globalization Institute Working Papers 350, Federal Reserve Bank of Dallas, revised 02 Nov 2018.
    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. Martin Feldkircher & Gabriele Tondl, 2020. "Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 225-247, August.
    7. Sona Benecka & Ludmila Fadejeva & Martin Feldkircher, 2018. "Spillovers from Euro Area Monetary Policy: A Focus on Emerging Europe," Working Papers 2018/04, Latvijas Banka.
    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. Feldkircher, Martin & Siklos, Pierre L., 2019. "Global inflation dynamics and inflation expectations," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 217-241.
    12. Luca Dedola & Georgios Georgiadis & Johannes Grab & Arnaud Mehl, 2018. "Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates," Globalization Institute Working Papers 350, Federal Reserve Bank of Dallas, revised 02 Nov 2018.
    13. Michael Pfarrhofer & Anna Stelzer, 2019. "The international effects of central bank information shocks," Papers 1912.03158, arXiv.org.
    14. Dedola, Luca & Georgiadis, Georgios & Gräb, Johannes & Mehl, Arnaud, 2020. "Does a big bazooka matter? Quantitative easing policies and exchange rates," Research Bulletin, European Central Bank, vol. 76.
    15. Geis, André & Moder, Isabella & Schuler, Tobias, 2020. "Who’s afraid of euro area monetary tightening? CESEE shouldn’t," Working Paper Series 2416, European Central Bank.

    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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