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.
- Sprache
-
Englisch
- Erschienen in
-
Series: CESifo Working Paper ; No. 7400
- Klassifikation
-
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
- Thema
-
monetary policy
euro crises
uncertainty
conditional quantiles
MCMC
FAVAR
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Mody, Ashoka
Nedeljkovic, Milan
- Ereignis
-
Veröffentlichung
- (wer)
-
Center for Economic Studies and ifo Institute (CESifo)
- (wo)
-
Munich
- (wann)
-
2018
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Mody, Ashoka
- Nedeljkovic, Milan
- Center for Economic Studies and ifo Institute (CESifo)
Entstanden
- 2018
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