Measuring the Short-Term Effects of the ECB’s Unconventional Monetary Policy on Financial Markets: A Review

2021 ◽  
Vol 54 (1) ◽  
pp. 37-77
Author(s):  
Lisa-Maria Kampl
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Event Studies ◽  
Empirical Literature ◽  
Unconventional Monetary Policy ◽  
Short Term ◽  
Comprehensive Overview ◽  
Announcement Effects ◽  
Policy Measures ◽  
Short Term Effects

Following the financial crisis in 2008, the ECB implemented various unconventional policy measures to respond to the tensions on the market. These measures had a significant impact and short-term effects on financial markets. This literature review provides a extensive overview of the empirical literature dealing with the short-term effects of this unconventional monetary policy using event studies. Furthermore, a methodological analysis of conducted event studies is carried out. First, we review empirical event studies focusing on the effects on the bond market, the stock market, as well as on international spill-over effects. Secondly, we carry out a methodological analysis of event studies that estimate the announcement effects of the ECB’s unconventional measures. In this context, the analysis provides insight into the process of determining relevant events, the categorization of those, measuring the surprise component, and determining control variables. By comparing the different approaches applied, we give a comprehensive overview of similarities as well as differences in the methodology used.

scholarly journals Unconventional Monetary Policy Measures and Inflation Expectations

2015 ◽  
pp. 1-6
Author(s):  
Mehmet Pasaogullari
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Large Scale ◽  
Balance Sheet ◽  
Inflation Expectations ◽  
Unconventional Monetary Policy ◽  
High Inflation ◽  
Policy Measures ◽  
Asset Purchases

The record increase in the size of the Federal Reserve's balance sheet after the financial crisis ignited fears among some people that high inflation would inevitably follow. We investigated whether those fears were supported in survey or market measures of inflation expectations around the time that large-scale asset purchases were announced. Nothing suggests that the Fed's new policy tools have been perceived by professional forecasters or financial markets as harbingers of hyperinflation.

Perspectives on inflation Targeting Regime in Russia

2014 ◽  
pp. 107-121 ◽  
Author(s):  
S. Andryushin
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Short Term ◽  
Indirect Control ◽  
Financial Account ◽  
Domestic Prices ◽  
Macroeconomic Indicators ◽  
Private And Public

The paper analyzes monetary policy of the Bank of Russia from 2008 to 2014. It presents the dynamics of macroeconomic indicators testifying to inability of the Bank of Russia to transit to inflation targeting regime. It is shown that the presence of short-term interest rates in the top borders of the percentage corridor does not allow to consider the key rate as a basic tool of monetary policy. The article justifies that stability of domestic prices is impossible with-out exchange rate stability. It is proved that to decrease excessive volatility on national consumer and financial markets it is reasonable to apply a policy of managing financial account, actively using for this purpose direct and indirect control tools for the cross-border flows of the private and public capital.

scholarly journals A SUNSPOT-BASED THEORY OF UNCONVENTIONAL MONETARY POLICY

2020 ◽  
pp. 1-32
Author(s):  
Roger E. A. Farmer ◽  
Pawel Zabczyk
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Rational Expectations ◽  
Balance Sheet ◽  
Unconventional Monetary Policy ◽  
Efficient Outcome ◽  
Complete Set ◽  
Pareto Efficient ◽  
Financial Securities

This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet. We construct a general equilibrium model where agents have rational expectations, and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank’s balance sheet affects equilibrium asset prices and economic activity. We prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is self-financing and leads to a Pareto efficient outcome.

ARE MAJOR CENTRAL BANKS BLINDED BY THE ANALYTICAL ELEGANCE OF THEIR MODELS? POSSIBLE COSTS OF UNCONVENTIONAL MONETARY POLICY MEASURES

2017 ◽  
Vol 62 (01) ◽  
pp. 87-108 ◽  
Author(s):  
PIOTR CIŻKOWICZ ◽  
ANDRZEJ RZOŃCAZ
Keyword(s):  
Monetary Policy ◽  
Global Financial Crisis ◽  
Significant Risk ◽  
Central Banks ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Unconventional Monetary Policy ◽  
Keynesian Model ◽  
Policy Measures ◽  
The Global Financial Crisis

We survey the possible costs of the unconventional monetary policy measures undertaken by major central banks after the outbreak of the global financial crisis in 2008. We argue that these costs are not easily discernable in the new Keynesian (NK) model, which defines a theoretical framework for monetary policy. First, the costs may result from the effects of unconventional monetary policy measures on the intensity of restructuring and the persistence of uncertainty (which increased after the outbreak of the crisis). However, neither of these processes is considered in the new Keynesian model. Second, costs may be generated not only by distortions in the choices made by economic agents but may also be a result of the decisions made by governments, particularly in terms of the fiscal deficit level. However, the new Keynesian model does not consider the effects of unconventional monetary policy measures on the quality of fiscal policy. Without carefully considering the costs, there is a significant risk that unconventional monetary policy measures could become a conventional response to recurrent crises.

Sustainability of the Bank of Japan’s ETF Purchasing Policy

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Kimie Harada
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Central Bank ◽  
Listed Companies ◽  
Unconventional Monetary Policy ◽  
Exit Strategy ◽  
Market Mechanisms ◽  
Bank Of Japan ◽  
Policy Measures ◽  
Purchasing Policy

Abstract The Bank of Japan is the only central bank that holds enormous amounts of stocks of listed companies by purchasing ETFs via its unconventional monetary policy measures. The Bank of Japan has been buying ETFs for more than a decade and, seemingly, has no awareness that it has become a huge investor in the stock market. This article explains how this policy has potentially distorted market mechanisms and how it is difficult to find an exit strategy.

scholarly journals Spillovers of US unconventional monetary policy: quantitative easing, spreads, and international financial markets

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Zekeriya Yildirim ◽  
Mehmet Ivrendi
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Risk Taking ◽  
Large Scale ◽  
Emerging Market ◽  
Spillover Effects ◽  
International Financial Markets ◽  
Quantitative Easing ◽  
Unconventional Monetary Policy ◽  
The Us

AbstractThis study investigates the international spillover effects of US unconventional monetary policy (UMP)—frequently called large-scale asset purchases or quantitative easing (QE)—on advanced and emerging market economies, using structural vector autoregressive models with high-frequency daily data. Blinder (Federal Reserve Bank of St. Louis Rev 92(6): 465–479, 2010) argued that the QE measures primarily aim to reduce US interest rate spreads, such as term and risk premiums. Considering this argument and recent empirical evidence, we use two spreads as indicators of US UMP: the mortgage and term spreads. Based on data from 20 emerging and 20 advanced countries, our empirical findings reveal that US unconventional monetary policies significantly affect financial conditions in emerging and advanced countries by altering the risk-taking behavior of investors. This result suggests that the risk-taking channel plays an important role in transmitting the effects of these policies to the rest of the world. The extent of these effects depends on the type of QE measures. QE measures such as purchases of private sector securities that lower the US mortgage spread exert stronger and more significant spillover effects on international financial markets than those that reduce the US term spread. Furthermore, the estimated financial spillovers vary substantially across countries and between and within the emerging and advanced countries that we examine in this study.

scholarly journals The Economic Effects of COVID-19 Containment Measures

2020 ◽  
Vol 20 (158) ◽  
Author(s):  
Pragyan Deb ◽  
Davide Furceri ◽  
Jonathan Ostry ◽  
Nour Tawk
Keyword(s):  
Monetary Policy ◽  
Economic Activity ◽  
Economic Effects ◽  
Economic Costs ◽  
Short Term ◽  
Absolute Value ◽  
Containment Measures ◽  
Policy Measures ◽  
Fiscal And Monetary Policy ◽  
Global Data

Containment measures are crucial to halt the spread of the 2019 COVID-19 pandemic but entail large short-term economic costs. This paper tries to quantify these effects using daily global data on real-time containment measures and indicators of economic activity such as Nitrogen Dioxide (NO2) emissions, flights, energy consumption, maritime trade, and mobility indices. Results suggest that containment measures have had, on average, a very large impact on economic activity—equivalent to a loss of about 15 percent in industrial production over a 30-day period following their implementation. Using novel data on fiscal and monetary policy measures used in response to the crisis, we find that these policy measures were effective in mitigating some of these economic costs. We also find that while workplace closures and stay-at-home orders are more effective in curbing infections, they are associated with the largest economic costs. Finally, while easing of containment measures has led to a pickup in economic activity, the effect has been lower (in absolute value) than that from the tightening of measures.

Inflation Targeting in Uganda

2018 ◽  
Author(s):  
Martin Brownbridge ◽  
Louis Kasekende
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Policy Framework ◽  
Price Shocks ◽  
Short Term ◽  
Basic Principles ◽  
Operating Target ◽  
Monetary Policy Framework

The Bank of Uganda introduced an inflation targeting (IT) monetary policy framework in 2011, replacing a decades-old money targeting framework. This chapter reviews Uganda’s experience and concludes that an IT framework is feasible for Uganda, despite shallow financial markets, volatile exchange rates, supply price shocks which make inflation more volatile and difficult to forecast, and lack of data. Key prerequisites were the operational independence of the central bank and the primacy of the core inflation objective for monetary policy. The successful adoption of IT in Uganda depended on the adoption of a set of basic principles, including: the primacy of the inflation forecast in setting policy; the separation of monetary from fiscal operations; the adoption of a short-term interest rate as the sole operating target, rather than e.g. a mix of interest rates and monetary aggregates; and an emphasis on clear communications.

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