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September 2016 issue
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Ramos-Francia
Altavilla, Giannone, Lenza
Bluwstein, Canova
Wright
Boneva, Cloyne, Weale, Wieladek
Nagel
Arce, Hurtado, Thomas
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Bayoumi
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The Financial and Macroeconomic Effects of the OMT Announcements

by Carlo Altavilla,a Domenico Giannone,b and Michele Lenzaa, c

Abstract

This paper evaluates the macroeconomic effects of the announcements of the European Central Bank’s Outright Monetary Transactions (OMT) program. Using high-frequency data, we find that the OMT announcements decreased the Italian and Spanish two-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 the OMT announcements is associated with a significant increase in real activity, credit, and prices in Italy and Spain, with some relatively muted spillovers in France and Germany.

JEL Codes: E47, E58, C54.

 
Full article (PDF, 29 pages, 617 kb)

Discussion by Stefania D'Amico


a European Central Bank
b Federal Reserve Bank of New York and CEPR
c ECARES-ULB