Does the ECB's quantitative easing stimulate  the Eurozone stock prices?

Spase  Dameski

doi:10.46763/JOE2492054d

Spase Dameski

DOI: https://doi.org/10.46763/JOE2492054d

Keywords: Quantitative easing, European Central Bank, Asset prices, Monetary policy, Eurozone

Abstract

This study delves into the nuanced relationship between quantitative easing (QE) programs implemented by the European Central Bank (ECB) and asset prices in the Eurozone, focusing particularly on the short-term effects. Through the utilization of alinear regression model, supplemented by the introduction of a binary variable
designed to isolate the immediate impact of ECB announcements, the analysis aims to disentangle the multifaceted influences of monetary policy communication and broader QE measures on stock price dynamics.
The findings of this investigation reveal notable insights into the effects of ECB QE initiatives on asset prices. While certain components of the ECB's QE programs, such as the asset-backed securities purchase program and the third covered bond purchase program, exhibit statistically significant effects on asset prices, others, including the
corporate sector purchase program and the public sector purchase program, do not. Additionally, the statistical analysis does not provide sufficient evidence to conclusively support the hypothesis that ECB QE programs lead to increased asset prices in the Eurozone, particularly in the short term. Despite the empirical evidence presented, it is crucial to acknowledge the methodological limitations inherent in the study. Endogeneity, anticipation of market behavior, and qualitative market dynamics pose notable challenges to the interpretation of results. Nevertheless, this study contributes to a deeper understanding of the mechanisms through which monetary
policy influences financial markets in the Eurozone. The implications of these findings extend beyond academic discourse, carrying significance for policymakers, investors, and market participants. By offering insights
into the effectiveness of QE measures as tools for promoting economic stability and growth, this study informs decision-making processes and shapes expectations regarding the impact of ECB policies on asset prices in the Eurozone. In conclusion, while the analysis presented in this study represents a step forward in unraveling the complexities of the relationship between ECB QE programs and asset prices, further research is warranted to address the methodological limitations and refine our understanding of this crucial aspect of monetary policy transmission mechanisms.

Downloads

Download data is not yet available.

References

1. Bridges, J. and R. Thomas (2012). „The impact of QE on the UK economy — some supportive
monetarist arithmetic.“. Working Paper No. 442, Bank of England.
2. Chen, N.-F., R. Roll, and S. A. Ross. (1986). „Economic Forces and the Stock Market.“. Journal
of Business 59: 383–403.
3. DeFina, R. H. (1991). „Does Inflation Depress the Stock Market?“. Federal Reserve Bank of Philadelphia Business Review, November/December 3–12.
4. DNB (2016a). „DNB's balance sheet grows due to stimulus measures.“. Statistical News 3‐8
2016, De Nederlandsche Bank, Amsterdam.
5. DNB (2016b). „Financial Stability report ‐ Spring 2016“. De Nederlandsche Bank, Amsterdam.
6. Dobbs, R., S. Lund, T. Koller, and A. Shwayder. (2013). „QE and Ultra-low Interest Rates:
Distributional Effects and Risks, McKinsey & Company, New York Global Institute (Discussion
Paper)“.
7. Dunne, P., M. Everett and R. Stuart (2015). „The Expanded Asset Purchase Programme – What,
Why and How of Euro Area QE.“. Quarterly Bulletin 03 / July 15, Bank of Ireland, Dublin.
8. Fama, E. F., and W. Schwert. (1977). „Asset Returns and Inflation.“. Journal of Financial
Economics 5: 115–146.
9. Firth, M. (1979). „The Relationship between Stock Market Returns and Rates of Inflation.“.
Journal of Finance 34: 743–749.
10. Gagnon, J. E. (2016). „Quantitative Easing: An Underappreciated Success“. Policy Brief, PB16
4, Peterson Institute for International Economics, Washington.
11. Geetha, C., R. Mohidin, V. V. Chandran, and V. Chong. (2011). „The Relationship between
Inflation and Stock Market: Evidence from Malaysia, United States and China.“. International
Journal of Economics and Management Sciences 1: 1–16.
12. Gern, K‐J., N. Jannsen, S. Kooths, and M Wolters (2015). „Quantitative Easing in the Euro Area:
Transmission Channels and Risks.“. Intereconomics, 2015, No. 4, pp. 206 – 212.
13. Gjerde, O., and F. Saettem. (1999). „Causal Relation among Stock Returns and Macroeconomic
Variables in a Small, Open Economy.“. Journal of International Financial Markets, Institutions and
Money 9: 61–74.
62
14. Gros, D., C. Alcidi and W. P. De Groen (2015). „Lessons from Quantitative Easing: Much ado
about so little?“. CEPS Policy Brief No. 330, Brussels.
15. Hamburger, M. J., and L. A. Kochin. (1972). „Money and Stock Prices: The Channels of
Influences.“. Journal of Finance 27: 231–249.
16. Homa, K. E., and D. M. Jaffe. (1971). „The Supply of Money and Common Stock Prices.“. Journal
of Finance 26: 1045–1066.
17. Hubble, N. (2013). „Does QE Drive the Stock Market?“. November 13.
http://www.dailyreckoning.com.au/doesqe-drive-the-stock-market/2013/11/13/.
18. Lenzner, R. (2013). „You Can Thank Ben Bernanke for 100% of the Stock Market Gains since
2009.“. Forbes, October 17.
19. Lenzner, R. (2014). „The Bull Market Will Be over When QE Ends.“. Forbes, June 20.
20. Lintner, J. (1973). „Inflation and Common Stock Prices in a Cyclical Context.“. National Bureau
of Economic Research 53rd Annual Report, September 12: 23–36.
21. Masuduzzaman, M. (2012). „Impact of the Macroeconomic Variables on the Stock Market
Returns: The Case of Germany and the United Kingdom.“. Global Journal of Management and
Business Research 12: 23–34.
22. McLeay, M., A. Radia and R. Thomas (2014). „Money creation in the modern economy.“.
Quarterly Bulletin 2014 Q1, Bank of England.
23. Minenna, M. (2016). „Disentangling the nature of Italy’s capital flights“. Sober Look, May 9, 2016.
24. Newman, R. (2012). „Why Wall Street Loves Quantitative Easing.“. US News and World Report,
September 12.
25. Ritholtz, B. (2013). „How Much Is QE Driving Equity Markets? (Hint: Not 100%).“. October 23.
http://www.ritholtz.com/blog/2013/10/how-much-is-qe-driving-equity-markets-hint-not-100/.
26. Ross, S. (2015). „How Does Quantitative Easing in the U.S. Affect the Stock Market?“.
http://www.investopedia.com/ask/answers/021015/how-does-quantitative-easing-us-affectstock
market.asp.
27. Uddin, M. G. S., and M. M. Alam. (2007). „The Impacts of Interest Rate on Stock Market: Empirical
Evidence from Dhaka Stock Exchange.“. South Asian Journal of Management and Sciences 1: 123–132.
28. Valiante, D. (2015). „The ‘Visible Hand’ of the ECB’s Quantitative Easing“. CEPS Working
Document No. 407, Brussels.