Quantitative easing in the Euro Area – An event study approach

International Capital Flows at the Security Level - Evidence from the ECB's Asset Purchase Programme

The Macroeconomic Impact of the ECB's Expanded Asset Purchase Programme (APP)

In this article, we present the impact of the monetary policy stance of the European Central Bank (ECB) since 2007 on bank lending in the euro area and compare the effects of the main measures: interest rate changes, liquidity provision, and asset purchase programmes. We also analyse the channels through which monetary policy might influence the banking system and narrow our focus to the individual countries. The main results indicate stimulating impact of ECB?s policy stance on bank lending that extends its influence mainly through interest rate cuts further supported by the liquidity provision and asset purchase programmes. However, we also find considerable differences across the member states, often depending on the state of the banking system and loan demand in the member state. The results support the variety of monetary policy measures introduced by the ECB, as each played its own role in supporting the banking system and encouraging bank lending in the euro area.

In a highly controversial decision, the German Federal Constitutional Court (FCC) decided that the Public Sector Purchase Program (PSPP) of the European Central Bank (ECB) was ultra vires because it violated the principle of proportionality. The FCC took a procedural approach to proportionality, finding that the ECB had failed to substantiate its balancing assessment. Therefore, the Court considered itself unable to review whether PSPP was substantively proportionate, but announced that it might do so in a future case. The judgment raises the fundamental question of how courts should review monetary policy. The article begins by exploring the role of central banks between independence and accountability. Then, it analyzes, in three steps, what role the principle of proportionality should play in the realm of monetary policy. First, I argue that a traditional substantive balancing test as part of proportionality review is not applicable to monetary policy decisions and highlight the pitfalls of the FCC’s approach. Second, I claim that the imposed procedural “duty to substantiate” is not suitable to promote the democratic accountability of the ECB. Third, I contend that, therefore, the PSPP ruling creates an impetus for strengthening the ECB’s supranational accountability. I suggest that improving the monetary dialogue with the EU Parliament and establishing a comprehensive transparency regime for the ECB could further this goal. Ultimately, I propose that a narrow reading of the PSPP ruling could reconcile the current conflict between the FCC and the ECB and still provide a sufficient level of judicial accountability for the ECB’s monetary policy-making.

In its judgment of May 5, 2020, the Second Senate of the German Constitutional Court qualified for the first time a judgment of the Court of Justice of the European Union (CJEU)—C-493/17 Weiss—as “arbitrary from an objective perspective” and declared the underlying European Central Bank (ECB) decisions regarding the Public Sector Purchase Programme (PSPP) to be ultra vires. It requested the German Government and the German Parliament to take steps against the PSPP in its current form and to ensure that the ECB conducts a proportionality assessment of its PSPP. The judgment also prohibits the German Central Bank from participating, after a grace period of three months, in the implementation and execution of the ECB decisions at issue, unless the ECB assesses and substantiates that the measures provided for in its decisions satisfy the principle of proportionality. The present article, which was written by academics, lawyers, and civil servants from five countries, casts a critical eye on the judgment of the German Constitutional Court. It identifies significant shortcomings from both a German constitutional and a European Union perspective.

Legal Aspects of the Single Monetary Policy in the Euro Area: From the Establishment of the Eurosystem to the Current Pandemic Crisis

This dissertation explores how central bank communication influences financial markets, focusing on the transmission of information through policy statements, program announcements, and forward guidance. By combining event-study methodologies, yield curve modeling, and volatility analysis, the research investigates how financial market participants interpret and react to central bank messages in both the United States and the Euro area. The analysis covers bond yields, stock market volatility, and broader implications for monetary transmission under different policy environments. The first empirical study examines yield reactions to forward guidance in the United States. Using high-frequency data surrounding Federal Reserve announcements, it quantifies the immediate impact of forward-looking policy statements on Treasury yields across maturities. Employing an event-study framework and regression-based sensitivity analysis, the study finds that forward guidance substantially alters market expectations of the future policy rate path. Short- and medium-term maturities exhibit the strongest yield responses, indicating that communication about the timing and persistence of policy normalization is a critical driver of bond market pricing. The findings confirm that the tone, clarity, and credibility of central bank statements shape the effectiveness of forward guidance as a monetary policy tool. The second part extends the analysis to the Euro area, investigating yield reactions to European Central Bank (ECB) program announcements, such as the Securities Markets Programme (SMP), the Outright Monetary Transactions (OMT), and the Asset Purchase Programme (APP). Through a carefully constructed event dataset and multiple regression specifications, the study isolates announcement effects on sovereign yields across member states. Results show significant yield compression following announcements of unconventional policy programs, particularly in stressed sovereign markets. Panel regressions further reveal that countries with higher yield spreads experience stronger reactions, confirming the credibility and signaling effects of ECB interventions. Moreover, robustness checks confirm that program-specific and timing-related factors play a central role in determining the magnitude of market responses. The third empirical study investigates how ECB communication affects the entire yield curve. It develops a model linking communication tone, timing, and policy content to shifts in the level, slope, and curvature of the Euro area yield curve. The analysis demonstrates that clear and consistent communication reduces uncertainty in expectations and flattens the yield curve, signaling confidence in policy continuity. Conversely, ambiguous or surprise statements tend to steepen the curve and increase market volatility. These results emphasize the role of transparency and consistency in anchoring interest rate expectations, particularly in periods of unconventional monetary policy. The fourth study focuses on the effects of ECB announcements on stock market volatility. Utilizing multiple measures—high-frequency realized volatility, daily price ranges, future and implied volatility indices—the research examines how equity markets respond to policy communications over time. The results indicate that monetary policy announcements have statistically significant effects on volatility, especially during crisis and post-crisis periods. Positive announcements (e.g., expansionary or supportive policies) tend to reduce volatility, while negative or tightening-related communications heighten it. The study also explores asymmetric effects, persistence over subsequent days, and the weighting of announcement content, revealing that market sensitivity depends on both the perceived economic outlook and the credibility of policy measures. Across all four studies, the findings collectively underscore that central bank communication is a powerful instrument of monetary policy—capable of moving markets even in the absence of traditional rate changes. The magnitude and direction of financial market reactions depend on message clarity, policy credibility, and prevailing market conditions. The research highlights that well-calibrated communication enhances the predictability of monetary policy, stabilizes expectations, and reduces excess volatility. In contrast, ambiguity or inconsistency can amplify uncertainty and undermine transmission effectiveness. The dissertation contributes to the literature by providing a comprehensive cross-market and cross-institutional analysis of how communication serves as a vital, yet complex, channel of modern monetary policy in both normal and crisis periods.

In September of 2014, ECB decides the beginning of the first Quantitative Easing (QE) programme called Asset-Backed Securities Purchase (ABSPP) and Covered Bond Purchase Programme (CBPP), in order to face the financial crisis. Next programme was the Public Sector Purchase Programme (PSPP) on 9 March 2015. Finally, on 18 March 2020, the ECB started the third programme called Pandemic Emergency Purchase Programme (PEPP). The goal of this study is to explore the impact of QE programmes on the stock market of Athens, considering the fact that Greece was the only European country to participate only in the third programme. Using daily data from 1/9/2014 to 22/1/2021, 3 GARCH(1,1) models with dummy variables are constructed to incorporate different QE programmes. In addition, 10-year bond, gold, and DAX are used in order to isolate systematic international factors. The empirical results show that the first QE programme has decreased the stock prices, the findings of the second QE programme aren’t statistically important, while the third programme has a positive effect on the stock market. The paper concludes that Greek participation on the QE programme played an important role in the stock market and suggests that other researchers investigate the methods in which Greece can utilize the positive climate after the end of PEPP.KeywordsECB quantitative easingStock marketGreeceGARCHJel Classification CodesC22E44E52E58

This paper evaluates the macroeconomic effects of the Eurosystem's expanded asset purchase programme (APP) under alternative assumptions about (i) unwinding the asset positions accumulated under the APP and (ii) current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area (EA). Our results are as follows. First, if the monetary authority brings forward the unwinding of its long‐term sovereign bond holdings, the stimulus from the APP on inflation and economic activity is correspondingly reduced. Second, if the monetary authority communicates that the policy rate will be held constant for 1 year instead of 2, the APP would be less effective and the increase in inflation would be halved. Third, an early exit from bond holding subdues the impact of the APP, delaying the normalization of monetary policy conditions after a negative EA‐wide demand shock.

Price Level Convergence and Inflation in Europe

Recent events have highlighted the potential importance of nonlinear efiects of flscal variables (notably debt and deflcits) on interest rates: While in times when government solvency is not a concern the standard crowding-out efiects are of moderate magnitude, in times when default risk becomes an issue the interest rate efiects can become very large. This paper provides new evidence on the magnitude of these efiects. For the case when default risk is not a concern, it uses an arbitrage-free term structure model to estimate the dynamic efiects of flscal policy shocks on interest rates along the entire maturity spectrum. For the case when default risk becomes a concern (thereby violating a central assumption of the term structure model), I present evidence based on EMU government bond spread regressions on time-varying efiects of national flscal policies on spreads as well as the time-varying sensitivity of yield spreads to international risk aversion as a function of the state of flscal policy. JEL classiflcation: E6, H6.

Chapter 7 discusses the German Federal Constitutional Court’s (GFCC) judgment on the European Central Bank’s Public Sector Purchase Programme (PSPP) and its repercussions in the context of the EU’s response to the Covid-19 pandemic. As the GFCC’s first ever ultra vires judgment, the PSPP ruling is a sign that the tension between the GFCC’s case law and the course of European integration has become increasingly untenable. Yet, despite this significant escalation, the chapter shows how the weak remedy left addressing the constitutional concern to Germany’s elected politicians. Such weak review lets national constitutional courts signal constitutional problems, but leaves their resolution to the political branches, which is welcome from a democratic perspective. In addition, and unlike during the euro crisis, elected politicians openly criticized the GFCC’s case law. Still, the GFCC’s case law continues to influence the development of European integration, visible in the legal design of Next Generation EU.

The European Central Bank (ECB) has been using unconventional monetary policy (UMP) since 2009, but the set of measures and their scale have varied significantly over the years. Until 2022, the measures were stimulatory and gradually expanded to increase aggregate demand in the economy. However, since 2022, the ECB has been pursuing contractionary UMP to combat inflation. This paper examines the effect of the ECB's UMP on financial stability in the euro area, which has received less attention in empirical studies compared to its macroeconomic effects. The study considers financial stability in each euro area country instead of an aggregate indicator, which determines its scientific novelty. The level of financial stability is measured by the CLIFS financial stress index, which captures volatility in key financial market segments. An indicator of the scale of UMP is the shadow interest rate, which reflects the effects of both interest rate cuts and asset purchases on the ECB balance sheet. The empirical analysis covers the period 2009–2023 and is based on a global vector autoregressive model. The results confirm that the ECB’s UMP reduces financial stress in only half of the euro area countries, including the largest economies and countries with vulnerable levels of public debt. Improving the transmission of unconventional monetary policy into lower risks to financial stability may require a revision of the ECB’s toolkit and an increase in the depth of the euro area countries’ financial markets.

The impact of the ECB’s asset purchase programme on euro area equities

Impact of US unconventional monetary policy on dynamic stock-bond correlations: Portfolio rebalancing and signalling channel effects