Arbeitspapier
Central Bank Policies and Financial Markets: Lessons from the Euro Crisis
The European Central Bank (ECB) took many measures to combat the eurozone’s rolling financial crisis. For providing desperately scarce dollars to eurozone banks, the ECB relied on the U.S. Federal Reserve. Using a novel econometric framework, we identify financial markets’ response to the ECB’s liquidity injections and its more pro-active monetary stimulus between October 2009 and September 2012, the most intense phase of the eurozone crisis. Dollar liquidity clearly reduced stress in bond markets and improved economic sentiment, as reflected in higher equity prices. In contrast, passive euro liquidity provision and even active measures (policy rate reductions and bond market interventions) delivered modest results. Although government bond spreads did typically decline, markets remained worried that spreads could rise quickly; moreover, broad economic sentiment remained unchanged. Only the Outright Monetary Transactions (OMT) “bazooka” had a substantial beneficial effect. Overall, the results point to the ECB’s limits in helping improve financial market’s sentiment.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 7400
- Classification
-
Wirtschaft
Financial Markets and the Macroeconomy
Central Banks and Their Policies
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Multiple or Simultaneous Equation Models: Classification Methods; Cluster Analysis; Principal Components; Factor Models
- Subject
-
monetary policy
euro crises
uncertainty
conditional quantiles
MCMC
FAVAR
- Event
-
Geistige Schöpfung
- (who)
-
Mody, Ashoka
Nedeljkovic, Milan
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2018
- Handle
- Last update
- 10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Mody, Ashoka
- Nedeljkovic, Milan
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2018
Other Objects (12)
Lessons of the crisis for emerging markets
Euro area fiscal policies and the crisis
Euro area labour markets and the crisis
Euro area labour markets and the crisis
The Global Financial Crisis: Causes, Anti-Crisis Policies and First Lessons
The Greek Economic Crisis, Labor Markets and Policies
The Greek Economic Crisis, Labor Markets and Policies
Assessing the European Central Bank's Euro Crisis Policies
Euro, Crisis and Unemployment: Youth Patterns, Youth Policies?
Russia's Financial Markets Boom, Crisis and Recovery 1995-2001: Lessons for Emerging Markets Investors
Loan supply, credit markets and the euro area financial crisis
Markets as 'ultimate judges' of economic policies: Angela Merkel's discourse profile during the economic crisis and the European crisis policies
Lessons of the crisis for emerging markets
Euro area fiscal policies and the crisis
Euro area labour markets and the crisis
Euro area labour markets and the crisis
The Global Financial Crisis: Causes, Anti-Crisis Policies and First Lessons
The Greek Economic Crisis, Labor Markets and Policies
The Greek Economic Crisis, Labor Markets and Policies
Assessing the European Central Bank's Euro Crisis Policies
Euro, Crisis and Unemployment: Youth Patterns, Youth Policies?
Russia's Financial Markets Boom, Crisis and Recovery 1995-2001: Lessons for Emerging Markets Investors
Loan supply, credit markets and the euro area financial crisis
Markets as 'ultimate judges' of economic policies: Angela Merkel's discourse profile during the economic crisis and the European crisis policies
Lessons of the crisis for emerging markets
Euro area fiscal policies and the crisis
Euro area labour markets and the crisis
Euro area labour markets and the crisis
The Global Financial Crisis: Causes, Anti-Crisis Policies and First Lessons
The Greek Economic Crisis, Labor Markets and Policies
The Greek Economic Crisis, Labor Markets and Policies
Assessing the European Central Bank's Euro Crisis Policies
Euro, Crisis and Unemployment: Youth Patterns, Youth Policies?
Russia's Financial Markets Boom, Crisis and Recovery 1995-2001: Lessons for Emerging Markets Investors
Loan supply, credit markets and the euro area financial crisis