Balance sheet expansionary policies in the euro area: Macroeconomic impacts and a vulnerable versus non-vulnerable comparison

Abstract

This paper investigates the impacts and heterogeneity of the ECB's large-scale asset purchasing programs of sovereign securities on real GDP, inflation, long-term sovereign bond yields, systemic stress, and the unemployment rate. A structural Bayesian VAR model with six endogenous variables was estimated for 11 euro area countries over the period 2012:M1 to 2023:M12. To provide robustness to the results, a structural panel BVAR model is estimated, enabling a straightforward comparison of impulse responses of vulnerable and non-vulnerable countries. The results suggest that the magnitudes of impulse responses were more favorable in countries that were more economically and financially vulnerable. These findings underscore that financial and economic distress was a source of heterogeneity in the responses to large scale asset purchases within the euro area.