Global Financial Market Impact of the Announcement of the Ecb's Extended Asset Purchase Programme

Abstract

We estimate the impact of the ECB’s announcement of the extended asset purchase programme (EAPP) on 22 January 2015 on global equity prices, bond yields and the euro exchange rate. We find that the EAPP announcement benefited global financial markets by boosting equity prices in the euro area and the rest of the world. At the same time, the EAPP announcement caused a depreciation of the euro vis-a-vis advanced and emerging market economy currencies. Comparing the EAPP to previous ECB announcements of unconventional monetary policies, the main channel of transmission of the EAPP announcement to global financial markets was through signalling — the ECB convincingly conveying to market participants that its future monetary policy stance will remain accommodative — rather than through improving confidence (as was the case for the OMT) or through portfolio re-balancing (as for the SMP). Similarly, in contrast to the OMT and the SMP announcements the signaling channel also played a major role for the domestic financial market impact of the EAPP. Cross country heterogeneities in the global financial market spillovers from the EAPP announcement were linked to differences in economies’ financial openness, exchange rate regime, trade and financial integration with the euro area and their attractiveness for carry trades.