Market Reactions to ECB Policy Innovations: A Cross-Country Analysis

Abstract

Financial markets vest an important role both in conveying monetary policy innovations to the real economy and in shaping business cycle's fluctuations. Hence, it becomes crucial to assess whether the ECB is able to wield homogeneous reactions in the main Eurozone stock markets and to quell their turbulences. The empirical analysis shows that conventional policy rate shifts affect unevenly the equity indices of the countries analysed, generating asymmetries between their business cycles. Moreover, the ECB stance proved unable to weather the storm and trigger an economic recovery. This calls for a refinement of ECB conduct and justifies the extensive employment of unconventional measures to revive the economy.Jel code: E42, E52, E58, F42, F45, G14