Market Reactions to ECB Policy Innovations: A Cross-Country Analysis

Abstract

Financial markets behaviour has increasingly become a reason of concern for the regulators worldwide. Hence, it becomes crucial for Central Bankers to be able to exert a certain degree of control on them. Through a dynamic assessment of the main Eurozone equity markets reaction to policy rate shifts, conducted applying an event study methodology, we aim to assess whether the ECB, with its conventional monetary policy manoeuvres, is able to wield a homogeneous effect across the main Eurozone equity markets. The empirical analysis shows that generally policy rate shifts affect unevenly the Eurozone financial indexes, and, hence, are bound to generate asymmetries that reflect on the real economy. This calls for a refinement of ECB conduct and for a thorough revision of the whole European economic policy strategy.