The (side-)effects of unconventional monetary policy in the euro area

Abstract

This thesis presents empirical work on the effects of unconventional monetary policy by the Eurosystem. While the unconventional monetary policy measures are generally deemed a success, they are not without controversy. By using a combination of many unique and granular datasets that are only available to the Eurosystem, this thesis finds evidence in both directions. Chapter 2 examines the relationship between Quantitative Easing (QE) and bubble formation in European equity markets. The results suggest that the anticipation, announcement and start of QE have led to exuberant price behaviour in European equity indices. Chapter 3 shows that bonds that are becoming scarce (due to Eurosystem purchases) become significantly more expensive in money markets. This effect increases as the central bank's footprint in financial markets increases. However, the Eurosystem is also effectively able to remove some of this price pressure by lending purchased bonds. Chapter 4 finds that during QE, European investors increase the relative share of bonds denominated in emerging market currencies, while Southern European investors also increase their (relative) exposure to Southern European bonds. Chapter 5 examines the effectiveness of the benchmark in the second series of the Eurosystem's targeted loans to banks (TLTRO-II). A more restrictive benchmark is associated with significantly more lending to non-financial companies by relatively large banks. Finally, Chapter 6 shows that banks' overall liquidity needs are becoming more difficult to predict, which can complicate the transition towards lower liquidity levels for central banks.