The effects of the ECB's expanded asset purchase programme

This paper provides empirical evidence on the financial and macroeconomic impact of the news associated to the announcement launching the ECB's expanded asset purchase programme (APP). We proxy the APP announcement shock with an announcement variable derived from the institutional features of the APP and survey-based evidence. The variable is used in a time-varying coefficient VAR model with stochastic volatility to estimate the effects of the announcement shock. The evidence suggests that this shock had a significant upward effect on both real economic activity and HICP inflation in the euro area. The response of long-term interest rates gave rise to a flattening of the yield curve in the short term, followed by a steepening in the medium term. Several channels of transmission appear to have been activated, including the portfolio rebalancing channel, the exchange rate channel and the credit channel.