The macroeconomic effects of quantitative easing in the euro area: Evidence from an estimated DSGE model

Abstract

This paper estimates an open-economy dynamic stochastic general equilibrium model with Bayesian techniques to analyse the macroeconomic effects of the European Central Bank's (ECB's) quantitative easing (QE) programme. Using data on government debt stocks and yields across maturities, we identify the parameter governing portfolio adjustment in the private sector. Shock decompositions suggest a positive contribution of ECB QE to annual euro area output growth and inflation in 2015-16 of up to 0.3 and 0.6 percentage points (pp) in the linearised version of the model. Allowing for an occasionally binding zerobound constraint by using piecewise linear solution techniques raises the positive impact to up to 0.7 and 0.8 pp. RésuméNous estimons, par des techniques bayésiennes, un modèle d'équilibre général dynamique et stochastique en économie ouverte afin d'analyser les effets macroéconomiques du programme d'assouplissement quantitatif de la Banque centrale européenne (BCE). À partir des données portant sur l'encours des titres d'État et les taux de rendement pour la gamme des échéances, nous évaluons le paramètre qui détermine les ajustements de portefeuilles dans le secteur privé. Les décompositions de chocs effectuées montrent qu'en zone euro, les mesures d'assouplissement quantitatif de la BCE auraient entraîné, en 2015-2016, des effets positifs sur la croissance annuelle de la production et sur l'inflation à hauteur de 0,3 et 0,6 point de pourcentage dans la version linéarisée du modèle. Lorsque nous permettons que la contrainte de la borne du zéro soit occasionnellement active au moyen de techniques de linéarisation, l'incidence favorable se chiffre respectivement à 0,7 et 0,8 point de pourcentage. Sujets : Modèles économiques; Taux d'intérêt; Transmission de la politique monétaire Codes JEL : E44, E52, E53, F41 Non-technical SummaryIn early 2015 the European Central Bank (ECB) joined the group of central banks that have implemented large-scale asset purchase programmes as unconventional policy measures. The ECB's quantitative easing (QE) programme, announced in January 2015, foresaw buying €60 billion of assets a month from March 2015 to September 2016, which in sum corresponds to circa 10% of annualised euro area (EA) gross domestic product (GDP). It has been continuously revised in both size and duration since then. This paper analyses the macroeconomic effects of the ECB's QE programme using a tworegion dynamic stochastic general equilibrium (DSGE) model for the EA and the rest of the world, estimated with Bayesian techniques. The estimation of the model is undertaken in an environment where the zero lower bound may be binding and to solve such models requires extending previous algorithms. QE is introduced into the model by adding a central bank balance sheet and distinguishing between short-term and long-term government debt. We use a formulation of a private-sector portfolio that allows for non-neutral effects of central bank purchase programmes due to imperfect substitutability between assets of different...

The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model

“…Our analysis is undertaken in the two-region (EA and rest-of-the-world (RoW)) model of Hohberger et al (2018), which introduces elements to study the effects of QE using the portfolio rebalancing approach. We motivate non-neutrality of QE through the imperfect substitutability between long-term and short-term government bonds as in, e.g., Andrés et al 2004 dividends (at a discount factor larger than the risk-free rate).…”

“…The variable acts as the "shadow" interest rate under a constrained regime. The algorithm by Giovannini and Ratto (2018) allows for determining endogenously the duration of an occasionally binding constraint (see Hohberger et al 2018).…”

“…In this paper, we investigate and contrast the distributional effects of two monetary policy regimes in a general equilibrium framework: (i) conventional monetary policy, where the central bank follows a Taylor rule targeting inflation and the output gap, and (ii) QE, where the central bank expands its balance sheet by purchasing long-term government bonds from the private sector. Our analysis builds on the estimated DSGE model of Hohberger et al (2018), which introduces elements to study the macroeconomic implications of the European Central Bank's (ECB's) quantitative easing policies.…”

“…The outline neglects shocks and adjustment costs that are not crucial for the description. For a detailed overview of the model seeHohberger et al (2018) 2. For a discussion of the main distributional channels of monetary policy seeCoibion et al (2017) 3.…”

Evaluating the Macroeconomic Effects of the ECB's Unconventional Monetary Policies

“…Using an estimated two‐region DSGE model, that combines data on government debt stocks and yields across maturities, Hohberger, Priftis, and Vogel () find similar effects. Specifically, between 2015Q1 and 2016Q2, their shock decompositions suggest a positive average contribution of the ECB asset purchases to output growth and inflation of up to 0.7% and 0.4%, respectively, depending on the presence of a temporarily binding zero‐bound constraint.…”