Global financial market impact of the announcement of the ECB's asset purchase programme

Abstract

We estimate the announcement effects of the ECB's asset purchase programme (APP) on the euro exchange rate, global equity prices and bond yields. We find that the APP announcement caused a broad-based depreciation of the euro by signalling that the ECB's future monetary policy stance will remain accommodative. At the same time, the APP announcement boosted equity prices around the world by supporting investor confidence and reducing the risk of deflation and persistent stagnation in the euro area. Exchange rates appreciated more strongly vis-à-vis the euro in response to APP-related news for countries which are more integrated with the rest of the world overall, which exhibit less bilateral trade and financial integration with the euro area, which are under a more flexible exchange rate regime, and which are perceived to be more risky. Finally, we do not find any evidence that the APP announcement led to an increase in portfolios flows to emerging market economies. Quite the opposite, the ECB's APP seems to have induced a re-balancing by global investors out of emerging into advanced economies’ financial markets.