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Assessing the Macroeconomic Impact of the ECB’s Asset Purchase Programme in a Dynamic Nelson–Siegel Modelling Framework

Siwen Zhou

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the macroeconomic impact of the Asset Purchase Programme (APP) in the euro area on the basis of a set of macro-finance variables included in a Dynamic Nelson–Siegel modelling framework. The empirical results emphasise the role of the APP’s portfolio balance channel in stimulating economic growth and inflation, both at the aggregate euro area level and at the disaggregated country-specific level. The portfolio balance channel works at the aggregated level through greater international price competitiveness, easier conditions on capital markets, and higher asset prices. Moreover, the results suggest that the initial APP announcement has increased the annual real GDP growth rates and HICP inflation in the euro area by up to 0.7% and 0.8%, respectively. At the disaggregated level, there is evidence for the stimulation of bank lending through the portfolio balance channel in the core countries. Moreover, the stronger rise in stock prices in the core countries shows that the wealth effect triggered by portfolio rebalancing is mainly concentrated in the richer member countries. A comparison of the country-specific macroeconomic impact of APP shows that while overall GDP responses are broadly comparable across countries, the peripheral countries that have implemented effective labour market reforms have benefited significantly from bond purchases in stimulating inflation. This points to the need for further labour market reforms in Italy. A reform package of labour and product market reforms can help to reduce the resulting transition costs.

Keywords: Quantitative Easing; Asset Purchase Programme; European Central Bank; Term Structure Model; Portfolio Balance Channel (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 F31 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2019-02-08
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