https://doi.org/10.52903/wp2025348
ΑSSESSING THE IMPACT OF UNCONVENTIONAL MONETARY POLICY ON LONG-TERM INTEREST RATES IN THE EURO AREA
WITH THE USE OF A MACRO-FINANCE MODEL
Sophocles N. Brissimis
Department of Economics, University of Piraeus, and Bank of Greece
Evangelia A. Georgiou
Economic Analysis and Research Department, Bank of Greece
ABSTRACT
This paper draws on the macro-finance model developed in Brissimis and Georgiou (2022) which exploits the expectations hypothesis with time variation in the term premium, to evaluate the effects of unconventional monetary policy on long-term interest rates in the euro area. The empirical specification of the model provides an overall excellent fit to the data of the euro area. To assess the effects of quantitative easing, we employ stock measures of this variable derived from the liabilities side of the Eurosystem balance sheet. We provide estimates for both short-run and long-run effects, the latter resulting from sustained increases in central bank liabilities. Our empirical results suggest that stronger effects on long-term rates arise from broader measures of quantitative easing, although these effects seem to have weakened during the negative interest rate period.
JEL-classifications: E43, E44, E52, E58
Keywords: Quantitative easing, expectations hypothesis, term premium, central bank liabilities, base money, reserves
Acknowledgements: We would like to thank the editor and the reviewer for their very helpful comments.
Disclaimer: The views expressed in this paper are those of the authors and not necessarily those of the Bank of Greece, the ECB or the Eurosystem.
Corresponding author:
Evangelia A. Georgiou
Economic Analysis and Research Department
Bank of Greece
21 El. Venizelos Av., 10250
Athens, Greece
Tel.:0030-210-3203615
email: egeorgiou@bankofgreece.gr