Unconventional Economic Policies and Sentiment: An International Assessment

Abstract

This paper estimates, using Bayesian and global VARs, the spillover effects of unconventional fiscal and monetary policies implemented in the United States and in the Eurozone during the last decade. Consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis. Our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass‐through of economic policies to the real sector in times of crisis and zero lower bound interest rates. In particular, the signalling channel plays an important role in successful unconventional economic policies. Moreover, if unconventional economic policies have an impact abroad, the effects are similar to those measured in the domestic country/region. Consequently, coordination and transparency are a prerequisite for ensuring short‐term growth after a global financial crisis.