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Why narrative information matters: Evidence from the asset purchase program of the ECB

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  • Frederic Opitz

Abstract

In this paper, I evaluate the effects of public sector purchase program announcement shocks in the Euro area estimating a Bayesian VAR with sign-restrictions augmented by narrative information taken from event studies. Using monthly data, I find that the shocks persistently increase inflation and output. The exchange rate, market volatility, borrowing costs, and systemic risk fall while the quantity of household credit and economic and consumer sentiment rises. Most importantly, I find that the additional narrative information substantially reduces the uncertainty around these effects, shedding new light on the effectiveness and the pass-through of unconventional monetary policy

Suggested Citation

  • Frederic Opitz, 2020. "Why narrative information matters: Evidence from the asset purchase program of the ECB," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 20/994, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:20/994
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    File URL: http://wps-feb.ugent.be/Papers/wp_20_994.pdf
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    References listed on IDEAS

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    1. Juan Antolín-Díaz & Juan F. Rubio-Ramírez, 2018. "Narrative Sign Restrictions for SVARs," American Economic Review, American Economic Association, vol. 108(10), pages 2802-2829, October.
    2. Carlo Altavilla & Domenico Giannone & Michele Lenza, 2016. "The Financial and Macroeconomic Effects of the OMT Announcements," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 29-57, September.
    3. Urszula Szczerbowicz, 2015. "The ECB Unconventional Monetary Policies: Have They Lowered Market Borrowing Costs for Banks and Governments?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 91-127, December.
    4. Weale, Martin & Wieladek, Tomasz, 2016. "What are the macroeconomic effects of asset purchases?," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 81-93.
    5. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "The Financial Market Effects of the Federal Reserve's Large-Scale Asset Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 7(1), pages 3-43, March.
    6. Christiane Baumeister & Luca Benati, 2013. "Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 165-212, June.
    7. Jef Boeckx & Maarten Dossche & Gert Peersman, 2017. "Effectiveness and Transmission of the ECB's Balance Sheet Policies," International Journal of Central Banking, International Journal of Central Banking, vol. 13(1), pages 297-333, February.
    8. De Santis, Roberto A., 2020. "Impact of the Asset Purchase Programme on euro area government bond yields using market news," Economic Modelling, Elsevier, vol. 86(C), pages 192-209.
    9. Gabriel Chodorow-Reich, 2014. "Effects of Unconventional Monetary Policy on Financial Institutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 155-227.
    10. Eser, Fabian & Schwaab, Bernd, 2016. "Evaluating the impact of unconventional monetary policy measures: Empirical evidence from the ECB׳s Securities Markets Programme," Journal of Financial Economics, Elsevier, vol. 119(1), pages 147-167.
    11. Carlo Altavilla & Giacomo Carboni & Roberto Motto, 2021. "Asset Purchase Programs and Financial Markets: Lessons from the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 17(70), pages 1-48, October.
    12. Beck, Roland & Duca, Ioana A. & Stracca, Livio, 2019. "Medium term treatment and side effects of quantitative easing: international evidence," Working Paper Series 2229, European Central Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Unconventional monetary policy; APP; Narrative sign-restrictions;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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