Assessing the impact of unconventional monetary policy on long-term interest rates in the euro area with the use of a macro-finance model

Sophocles Brissimis and Evangelia Georgiou

No 348, Working Papers from Bank of Greece

Abstract: This paper draws on the macro-finance model developed in Brissimis and Georgiou (2022) which exploits the expectations hypothesis with time variation in the term premium, to evaluate the effects of unconventional monetary policy on long-term interest rates in the euro area. The empirical specification of the model provides an overall excellent fit to the data of the euro area. To assess the effects of quantitative easing, we employ stock measures of this variable derived from the liabilities side of the Eurosystem balance sheet. We provide estimates for both short-run and long-run effects, the latter resulting from sustained increases in central bank liabilities. Our empirical results suggest that stronger effects on long-term rates arise from broader measures of quantitative easing, although these effects seem to have weakened during the negative interest rate period.

Keywords: Quantitative easing; expectations hypothesis; term premium; central bank liabilities; base money; reserves (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Pages: 45
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:348

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