An Event Study Analysis of ECB Unconventional Monetary Policy

This paper analyzes the impact of the unconventional monetary policy measures implemented by the European Central Bank since 2007 to cope with the financial and sovereign debt crisis. The focus is on government bond yields of 10 European countries and 6 extra-Euro countries to evaluate the monetary policy transmission mechanism. In particular, I evaluate the effects of monetary policy announcements and liquidity injections on the yield curve. The econometric tool applied is the event-study methodology on policy announcements and liquidity injections (longer-term refinancing operations). Results support the existence of an expectational channel of transmission and, more important, they show that the effects of unconventional measures are not unique inside the monetary union but vary between countries and over time. In particular, the unfolding of the European sovereign debt crisis completely changed the impact of liquidity injections as they led to a rise in interest rate spreads for highly indebted countries.