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Department of Economics, WU (Wirtschaftsuniversität Wien) Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 248:
Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy

Martin Feldkircher Author-Email: martin.feldkircher@oenb.at Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB) and Vienna University of Economics and Business Note: PDF Document Keywords: Euro area monetary policy, quantitative easing, spillovers Classification-JEL: C30, E52, F41, E32 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-a-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. Thomas Gruber Author-Email: thomas.gruber@oenb.at Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB) Author-Name: Florian Huber Author-Email: florian.huber@wu.ac.at Author-WorkPlace-Name: Department of Economics

May 2017

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