DP10025 The Financial and Macroeconomic Effects of OMT Announcements

Author(s):	Carlo Altavilla, Domenico Giannone, Michele Lenza
Publication Date:	June 2014
Keyword(s):	event study, multi-country vector autoregressive model, news, Outright Monetary Transactions
JEL(s):	C54, E47, E58
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10025

This study evaluates the macroeconomic effects of Outright Monetary Transaction (OMT) announcements by the European Central Bank (ECB). Using high-frequency data, we find that OMT announcements decreased the Italian and Spanish 2-year government bond yields by about 2 percentage points, while leaving unchanged the bond yields of the same maturity in Germany and France. These results are used to calibrate a scenario in a multi-country model describing the macrofinancial linkages in France, Germany, Italy, and Spain. The scenario analysis suggests that the reduction in bond yields due to OMT announcements is associated with a significant increase in real activity, credit, and prices in Italy and Spain with relatively muted spillovers in France and Germany.