Abstract
We analyse the effects of announcements of changes in the Eurosystem’s balance sheet size, duration and composition on inflation expectations, the exchange rate, the 10-year euro area government bond yield and stock returns, using local projections. We explicitly take into account interaction effects between the three balance sheet dimensions. We provide evidence for the duration extraction channel of monetary policy transmission as we find that the bond yield is sensitive to the combined impact of shocks to balance sheet size and duration. The exchange rate is also affected by a joint size-duration shock. Moreover, the bond yield and exchange rate are sensitive to the joint effect of changes in size and composition. The results indicate that interactions between balance sheet dimensions matter.
| Original language | English |
|---|---|
| Pages (from-to) | 1186-1209 |
| Number of pages | 24 |
| Journal | European Journal of Finance |
| Volume | 27 |
| Issue number | 12 |
| Early online date | 7 Jan 2021 |
| DOIs | |
| Publication status | Published - 2021 |
Bibliographical note
Publisher Copyright:© 2021 Informa UK Limited, trading as Taylor & Francis Group.
Keywords
- Central banks and their policies
- monetary policy
