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

Martin Feldkircher, Thomas Gruber and Florian Huber

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

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.

Keywords: Euro area monetary policy; quantitative easing; spillovers (search for similar items in EconPapers)
JEL-codes: C30 E32 E52 F41 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: International effects of a compression of euro area yield curves (2019)
Working Paper: Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy (2017)
Working Paper: Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168111

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