Spillovers of the ECB's non-standard monetary policy into CESEE economies

Abstract

In this paper we provide evidence that ECB's asset purchase programmes spill over into CESEE countries contributing to easing their financial conditions, both in the short-and in the long-term through different transmission channels. In the short run, a selected number of financial variables in CESEE markets appear to respond to the news related to ECB non-standard policies, moving in the expected direction. On a longer-term horizon, we found that that portfolio and banking capital inflows towards CESEE economies were affected by announcements of ECB's asset purchase programmes and actual asset purchases, pointing to the existence of a portfolio rebalancing and a (banking) liquidity channels in the latter case.

ECB'S non‐standard monetary policy and asset price volatility: Evidence from EU‐6 economies

“…In particular, they include: (a) capital flows t which refers to the net portfolio inflows to EU‐6 economies for registered funds from Emerging Portfolio Fund Research (EPFR), 17 and are calculated as z‐scores of equity flows, bond flows and total portfolio flows used, respectively, in the mean equations of the stock market returns, bond yield changes and foreign exchange variations 18 ; (b) VSTOXX t , which is the EURO STOXX 50 volatility index and is intended to capture the impact of external shocks on international investors' degree of risk aversion; (c) ECB's APPs t , which includes different proxies to describe the functioning, and measure the impact, of the programmes of asset purchases the ECB has been implementing since July 2009. In this respect, three different indicators are taken into account: (a) the weekly average of 10‐year yields on euro area AAA‐rated government bonds (Ciarlone & Colabella, 2016; Korniyenko & Loukoianova, 2015); (b) the weekly average of the shadow rate developed by Wu and Xia (2016) for the euro area; (c) a quantity, rather than a price, indicator represented by the increase in the ECB's holdings of securities for monetary purposes (Ciarlone & Colabella, 2016). Chart 1 contains the time evolution of these three proxies (along with that of the ECB's main refinancing interest rate to account for the conventional monetary policy instrument), which appear to be clearly related to one another.…”

“…As regards the level of 10‐year yields on euro area AAA‐rated government bonds, we use the two‐step procedure originally proposed by Ahmed and Zlate (2014) – and subsequently employed by Korniyenko and Loukoianova (2015) and Ciarlone and Colabella (2016) – which is aimed to isolate the changes in such yields that can be considered as directly attributable to the implementation of the ECB's non‐standard monetary measures. In the first stage, a simple OLS regression over the period from July 2009 to December 2016 is run, where the ECB's one‐week ahead actual gross asset purchases are used as an explicit determinant of the weekly average of euro area AAA‐rated government long‐term yields; estimation results show the existence of a significant relationship between the two variables, with the actual realization of these non‐standard programmes having been accompanied by a reduction in long‐term interest rates 22 .…”

“…An ample literature has investigated the international spillover effects and the related transmission channels of such unconventional monetary policies with regard to the experience of both the Federal Reserve (Ahmed & Zlate, 2014; Bowman, Londono, & Sapriza, 2015; Chen, Filardo, He, & Zhu, 2012, just to name a few) and the ECB (Ciarlone & Colabella, 2016; Falagiarda, McQuade, & Tirpák, 2015; Georgiadis & Gräb, 2015). These studies mainly paid attention to the cross‐border impact of unconventional monetary policies on the level of both financial and real variables in emerging market economies (EMEs).…”

“…4 4 There is not enough space here to summarize the extensive literature on the international spillover effects on the level of both real and financial variables in EMEs stemming from the different rounds of quantitative easing measures implemented by major central banks in AEs. The interested reader is referred to Ciarlone and Colabella (2016) for a summary on the topic. …”

Spillover Effects of US QE and QE Tapering on African and Middle Eastern Stock Indices

“…SMPs announcements mainly have an effect via the portfolio rebalancing and the signaling channels. Ciarlone and Colabella (2016) showed that spillovers from the ECB's non-conventional policies have influenced central and south-eastern European countries, both in the short-and the long-term. Portfolio rebalancing and the liquidity channels have been the main drivers of long-term effects.…”