As a response to the Great Recession, many central banks resorted to unconventional monetary policies , in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies on stock market volatility in four Eurozone countries (France, Germany, Italy, and Spain)within the Multiplicative Error Model framework. We propose a model that allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement effect and the implementation effect. While we observe an increase in volatility on announcement days , we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A Model Confidence Set approach finds how the forecasting power of the proxy improves significantly after the policy announcement; a multi-step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt-troubled countries.
Taking the European Central Bank unconventional policies as a reference, we suggest a class of Multiplicative Error Models (MEM) taylored to analyze the impact such policies have on stock market volatility . The new set of models, called MEM with Asymmetry and Policy effects (MAP), keeps the base volatility dynamics separate from a component reproducing policy effects, with an increase in volatility on announcement days and a decrease unfolding implementation effects. When applied to four Eurozone markets, a Model Confidence Set approach finds a significant improvement of the forecasting power of the proxy after the Expanded Asset Purchase Programme implementation; a multi--step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt--troubled countries.
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As a response to the Great Recession, many central banks resorted to unconventional monetary policies , in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies
Taking the European Central Bank unconventional policies as a reference, we suggest a class of Multiplicative Error Models (MEM) taylored to analyze the impact such policies have
R
in four Eurozone countries (France, Germany, Italy, and Spain)within the Multiplicative Error Model framework. We propose a model that allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement effect and the implementation effect. While we observe
. The new set of models, called MEM with Asymmetry and Policy effects (MAP), keeps the base volatility dynamics separate from a component reproducing policy effects, with
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, we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A
and a decrease unfolding implementation effects. When applied to four Eurozone markets, a
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a significant improvement of
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improves significantly after the policy announcement; a multi-step
after the Expanded Asset Purchase Programme implementation; a multi--step
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