Reassessment of Structural Changes in Financial Markets: The Direct Impact of Central Banks

Damià Rey Miró (), Pedro V. Piffaut () and Ricardo Palomo Zurdo ()
Additional contact information
Damià Rey Miró: CEINDO, CEU PhD International School, UAO CEU Business & Economics Department, Barcelona, Spain
Pedro V. Piffaut: Columbia University in the City of New York, NY, USA
Ricardo Palomo Zurdo: Economics Department, Universidad San Pablo CEU de Madrid, Spain

Journal of Central Banking Theory and Practice, 2025, vol. 14, issue 1, 21-42

Abstract: The evidence of financial globalization and the rapid and uniform contagion that it entails among the different international financial markets, have been exposed after the 2008 crisis outbreak, as well as the different chapters of financial stress that have been experienced since then, such as the sovereign debt crisis, the Brexit event, the COVID-19 pandemic, and the war in Ukraine. Despite these specific episodes, volatility in the post-subprime crisis period has been low in historical terms due, among many other factors, to the monetary policies of central banks which, with their increases in the money supply and low interest rates, have led to a change of substance and form in the financial markets, not only at a national level but also at a supranational level. However, after the COVID-19 pandemic and the outbreak of the war in Ukraine, inflation appeared abruptly putting central banks in an uncomfortable situation, which have been forced to raise interest rates quickly and forcefully. In this paper, an estimation and quantification of the pre-pandemic and post-pandemic volatility thresholds is carried out for each of the main stock market indices to estimate the changes in these borders that affect and determine different degrees of financial contagion. Additionally, this study may determine the potential causal relationship between the change in the balance sheets of the main central banks and market volatility. If such relationships exist, it could undoubtedly mark a before and after in the implementation of monetary policies by these banking entities.

Keywords: Central bank balance sheet; systemic risk; financial contagion; stock market volatility; VAR analysis; financial crisis. (search for similar items in EconPapers)
JEL-codes: C22 C58 E52 E58 G01 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cbcg.me/repec/cbk/journl/vol14no1-2.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:14:y:2025:i:1:p:21-42

Access Statistics for this article

More articles in Journal of Central Banking Theory and Practice from Central bank of Montenegro Contact information at EDIRC.
Bibliographic data for series maintained by ().