How did unconventional monetary policies impact market expectations?

Abstract

The objective of this paper is to assess the impact of unconventional monetary policy announcements of the European Central Bank on market expectations in the whole euro area and in eight of its members. To this end, we first estimate the shape of forward rate curves by employing the Nelson-Siegel-Svensson method. Then, we employ multivariate GARCH models to estimate the impact of UMP announcements on four key parameters extracted from the estimated yield curves, which can be interpreted in terms of market expectations on economic and policy perspectives. Globally, we find that UMP announcements were well received by financial markets. In particular, they contributed to make private agents rather optimistic about future inflation and economic growth. Thus, so far, we do not find evidence of “japanification” of the euro area.