International Spillovers of Non-standard Monetary Policy: Evidence From Central and Eastern Europe

AbstractThe transmission mechanism has been dominated by direct monetary measures since the crisis of 2008. While the indirect impacts of the unconventional monetary instruments have not been fully explored yet. Monetary policy and funding conditions determine pricing sentiments for bond, stock and currency markets, represented by the volatilities of their main indicators: stock market indices, exchange rates, and yield premia. Our theoretical model takes spillover effects into account when it determines the variables which are responsible for volatility: the activities of international financial institutions (like the ESM or the IMF) are represented by dummy variables, while the limited autonomy in the shadow of the ECB is captured through gravity-like approaches. Six EU member states outside the Eurozone and Switzerland were analysed between 2007 and 2019 with random effect panel regression models to identify the differences in the impact of spillover effects on capital market volatilities. The results obtained are considered to be useful in mapping the potential effects of continuing monetary easing in the near future.

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Drivers of the Bond Market Premium in Open and Small Economies Around the Eurozone

Mészáros¹,

Kiss²

2021

AAK

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Nowadays, the examination of bond markets is becoming more prominent as there have been significant changes in the financial market and economic policy processes due to the diverse economic shocks. The room for manoeuvre available for monetary policy is no longer a function of base rates, but rather of the growth of central bank balance sheetswhich can also have side-effects on bond yield progresses. Also, QE is only the privilege of large central banks, if smaller central banks use these programs the yield premium will be elevated. Six European small open economies (Czechia, Denmark, Hungary, Poland, Switzerland, Sweden) outside the Eurozone were investigated on quarterly basis between 2007 and 2020 with Autoregressive Distributed Lag (ARDL) cointegration technique. The aim of our research was to identify the effects of the recent economic shocks -the economic crisis of 2008, the subsequent European sovereign debt crisis and the current corona virus epidemic -on the evolution of international bond yield premia time series in the light of monetary policy, macro variables and financial markets. The results were typically in line with expectations, except that no significant bond market impact of portfolio capital flow could be measured on the sample. The main outcome proved that the unconventional monetary policy increased yield premiums in these analysed countries, meaning that QE is not for small and open economies.

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International Spillovers of Non-standard Monetary Policy: Evidence From Central and Eastern Europe

Cited by 3 publications

References 22 publications

Monetary Independence of Central and Eastern European Economies with Flexible Exchange Rate Regimes

Monetary Independence of Central and Eastern European Economies with Flexible Exchange Rate Regimes

Spillover effects of unconventional monetary policy on capital markets in the shadow of the Eurozone: A sample of non-Eurozone countries

Drivers of the Bond Market Premium in Open and Small Economies Around the Eurozone

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