Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191425
Authors: 
Mody, Ashoka
Nedeljkovic, Milan
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper 7400
Abstract: 
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.
Subjects: 
monetary policy
euro crises
uncertainty
conditional quantiles
MCMC
FAVAR
JEL: 
E44
E58
C32
C38
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.