European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

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

Martin Feldkircher Author-Email: 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: Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB) Author-Name: Florian Huber Author-Email: Author-WorkPlace-Name: Department of Economics

May 2017

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