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Market reactions to ECB policy innovations: A cross-country analysis

Fausto Pacicco (), Luigi Vena and Andrea Venegoni

Journal of International Money and Finance, 2019, vol. 91, issue C, 126-137

Abstract: Regulators have been paying increasing attention to governing and steering market fluctuations, with their role in shaping the economic cycle being ever more crucial. The combined effect of the financial and sovereign debt crises, as well as the approach to the zero lower bound, has made actions even more pressing, forcing the European Central Bank to resort to unconventional instruments to revive the economies and counter deflationary pressures. By using a combined event study and panel regression methodology, we investigate whether European Monetary Union equity markets react heterogeneously to standard and non-standard European Central Bank policy innovations. Our results show that conventional policies unevenly affect financial indices in the Eurozone and, hence, are bound to generate asymmetries that reflect on real economies, while unconventional measures, albeit with different intensities, exercise a homogeneous pressure on all markets. Our evidence highlights the beneficial impact of unconventional measures and suggests that they can play a useful role even in non-crisis times.

Keywords: Monetary policy; Transmission mechanism; Equity channel; Event study; Panel regressions (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 F42 F45 G14 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Market Reactions to ECB Policy Innovations: A Cross-Country Analysis (2017) Downloads
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