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

Martin Feldkircher, Thomas Gruber, Florian Huber

Publication: Working/Discussion PaperWU Working Paper

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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.
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 1 May 2017

Publication series

NameDepartment of Economics Working Paper Series
No.248

WU Working Paper Series

  • Department of Economics Working Paper Series

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