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Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy

Feldkircher, Martin and Gruber, Thomas and Huber, Florian (2017) Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy. Department of Economics Working Paper Series, 248. WU Vienna University of Economics and Business, Vienna.

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Abstract

As a consequence of asset purchases by the European Central Bank (ECB), longer-term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model with stochastic volatility and propose a novel mixture of zero impact and sign restrictions that we impose on the cross-section of the data. Both shocks generate positive and significant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-á-vis the euro (trade channel). While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.

Item Type: Paper
Keywords: Euro area monetary policy, quantitative easing, spillovers
Classification Codes: JEL C30, E52, F41, E32
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 11 May 2017 15:09
Last Modified: 11 May 2017 15:09
URI: http://epub.wu.ac.at/id/eprint/5554

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