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Sudden Stops and Asset Purchase Programmes in the Euro Area

Josefina Fabiani (), Michael Fidor (), Ralph Setzer (), Andreas Westphal () and Nico Zorell ()
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Josefina Fabiani: The University of Manchester
Michael Fidor: European Central Bank
Andreas Westphal: European Central Bank
Nico Zorell: European Central Bank

Credit and Capital Markets, 2021, vol. 54, issue 3, 375-421

Abstract: This paper analyses the incidence and severity of sudden stops in euro area countries before and after the introduction of the ECB’s asset purchase programmes. We define sudden stops as abrupt declines in private net financial inflows, i. e. total flows adjusted for EU and IMF loans and changes in TARGET2 balances. We document that sudden stop were more frequent and more severe in euro area countries compared to other OECD economies over the period 1999 – 2020. We find that the susceptibility of euro area countries to severe sudden stops mainly reflects domestic fundamentals whereas there is no clear evidence of an adverse direct effect of being part of the euro area. Moreover, our econometric analysis suggests that the ECB asset purchase programmes have overall almost halved the risk of severe sudden stops in euro area countries. We find tentative evidence that this effect operates through confidence channels.

JEL-codes: F21 F31 F32 F41 F45 (search for similar items in EconPapers)
Date: 2021
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Handle: RePEc:kuk:journl:v:54:y:2021:i:3:p:375-421