Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93421
Authors: 
Hristov, Nikolay
Hülsewig, Oliver
Siemsen, Thomas
Wollmershäuser, Timo
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4628
Abstract: 
This paper explores the potential effectiveness of the ECB's Outright Monetary Transaction (OMT) program in safeguarding an appropriate monetary policy transmission. Since the program aims at manipulating bank lending rates by conducting sovereign bond purchases on secondary markets, a stable relationship between bank lending rates and government bond rates is of prime importance. Using vector autoregressive models with time varying parameters (TVP VAR) we evaluate the stability of this relationship by focusing on the reaction of bank lending rates to movements in government bond rates over the period 2003 2013. Our results suggest that the potential success of OMTs in restoring the monetary transmission mechanism is limited as the link between bank lending rates and government bond rates has substantially weakened since the end of 2008.
Subjects: 
European Central Bank
OMT program
time varying parameter vector autoregressive model
interest rate pass-through
JEL: 
E42
E43
E44
E58
E63
Document Type: 
Working Paper

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