How have the European central bank’s monetary policies been affecting financial markets in CEE-3 countries?

Abstract

This paper aims to contribute to the growing pool of literature on the spillover effects of the European Central Bank’s (un)conventional monetary policies on the exchange rate, sovereign bond and equity markets of the Czech Republic, Hungary and Poland (CEE-3 countries), which are collectively known as the CEE-3 countries. The study is conducted using daily data from January 2010 to September 2019. Our results indicate that the financial markets of the CEE-3 countries have been strongly influenced by the nonstandard measures enacted by the European Central Bank, particularly those involving purchases of euro-area sovereign debt. The strongest spillover effects were identified for the Securities Markets Program, while the effects from the Outright Monetary Transactions program turned out to be the most durable. At the same time, the financial markets of the CEE-3 countries were found to have been largely unaffected by interest rate changes enacted by the European Central Bank.

The COVID-19 pandemic and financial markets in Central Europe: Macroeconomic measures and international policy spillovers

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Monetary shocks on the Korean stock index: structural VAR analysis

“…Lettau and Ludvigson ( 2001 ) argued that the ratio of consumption to the aggregate wealth, including labor income, is important to the change in stock prices. Grabowski and Stawasz-Grabowska ( 2021 ) also found that the European Central Bank’s monetary policy also affected the equity markets of the Czech, Hungary, and Poland.…”

Long-term sovereign interest rates in Czechia, Hungary and Poland: a comparative assessment with an affine term structure model

“…This may also produce externalities for local bond markets and have an impact on domestic economies (Kolasa and Wesołowski, 2020). There is now accumulating evidence that a substantial part of spillovers from the ECB's monetary policy, both standard and non-standard one, is transmitted to CE economies via sovereign bond yields (Grabowski and Stawasz-Grabowska, 2020;Janus, 2020). Hence, the detailed evidence on the long-term interest rates is of sheer importance to policymakers in the CE countries, because exogenous movements in these yields may hamper the ability to influence interest rates on the longer end of the yield curve.…”