Spillover effects of the unconventional monetary policy of the European Central Bank

Abstract

We analyze the effects of the European Central Bank’s (ECB) unconventional monetary policy spillovers on the inflation-targeting Central Eastern European (CEE) countries using daily panel data from 2000 to 2019. We perform an exercise to identify these spillovers on the monetary market, calculate instantaneous short rates and term spreads, and use both Bayesian averaging panel and time-series approaches. Overall, we find that the spillovers from the unconventional ECB policy are not different from the conventional spillovers and are generally insignificant. While we find a significant reaction to inflation and an insignificant reaction to the output gap, we find that none of our ECB policy measures affect the instantaneous short interest rate nor the long-run term spreads. Our main result is that the international spillovers manifest themselves through the risk-taking channel, not the bond/interest rate channel, and have the form of volatility co-movement.