Smells Like Fiscal Policy? Assessing the Potential Effectiveness of the ECB s OMT Program

Timo Wollmershäuser, Nikolay Hristov, Oliver Hülsewig and Thomas Siemsen

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper explores the potential effectiveness of the ECB s Outright Monetary Transaction (OMT) program in safeguarding an appropriate monetary policy transmission. Since the program aims at manipulating bank lending rates by conducting sovereign bond purchases on secondary markets, a stable relationship between bank lending rates and government bond rates is of prime importance. Using vector autoregressive models with time varying parameters (TVP VAR) we evaluate the stability of this relationship by focusing on the reaction of bank lending rates to movements in government bond rates over the period 2003 2013. Our results suggest that the potential success of OMTs in restoring the monetary transmission mechanism is limited as the link between bank lending rates and government bond rates has substantially weakened since the end of 2008.

JEL-codes: E42 E43 E58 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Smells Like Fiscal Policy? Assessing the Potential Effectiveness of the ECB's OMT Program (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100280

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