The Transmission Mechanism of the European Central Bank Unconventional Monetary Policy: A Global Assessment

Abstract

During, and after the 2008 financial crisis, most monetary authorities in advanced economies officially adopted Unconvenetional Monetary Policy (UMP); that involves the mass purchase of treasury and mortgage-backed securities. This policy is intended to serve the purpose of mitigating the effects of crises, especially when the interest rate has reached the so-called Zero Lower Bound (ZLB). This study attempts to examine the transmission mechanism/channels of the European Central Bank (ECB) UMP, including both domestic and international spillover effects by employing a Global Vector Autoregressive (GVAR) model. Generally, the ECB UMP effects show encouraging and positive responses from economies within the Euro Area region while international spillover effects are mixed, probably due to the diverse nature of the monetary policy regimes deployed in the different countries, especially the emerging economies.