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The impact of conventional and unconventional monetary policy on expectations and sentiment

Emilios Galariotis, Panagiota Makrichoriti and Spyros Spyrou

Journal of Banking & Finance, 2018, vol. 86, issue C, 1-20

Abstract: This paper offers evidence on the effect of ECB's conventional and unconventional monetary policy on economic expectations in Euro-area countries during the US and EU crisis. We employ a range of research methodologies in a sample of nine Eurozone countries and combine expectations/sentiment indicators with a set of macroeconomic and financial variables. We find that ECB's conventional monetary policy (and Fed's monetary policy stance) has a positive and significant effect on economic expectations for Core Eurozone countries and a weak effect on Peripheral Eurozone countries. ECB's unconventional policy measures, however, have a negative short term effect on Core countries’ economic expectations. This result is robust to different methodologies (PVAR, QVAR, FAVAR) and different datasets. Overall, our findings highlight the importance of monetary policy in the determination of economic expectations.

Keywords: Unconventional monetary policy; Sentiment; Economic expectations (search for similar items in EconPapers)
JEL-codes: E52 G02 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jbankfin.2017.08.014

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