Uncovering the heterogeneous effects of ECB unconventional monetary policies across euro area countries

Abstract

We assess the effects of recent ECB’s unconventional monetary policy (UMP) measures by estimating a global VAR that exploits panel variation amongst all euro area economies and explicitly takes into account cross-country interdependencies. Most euro area members benefit from these measures but with substantial heterogeneity, whose extent has been evolving over time and peaked with the sovereign debt crisis. Cross-country spillovers account for a sizable fraction of such dispersion, and substantially amplify effects. Countries with more fragile banking systems benefit the least from unconventional monetary policy measures, and especially so in terms of output gains. Importantly, this heterogeneity implies that the effects on real activity of the whole currency union get substantially dampened. In this respect, we also document that UMP shocks imply significantly smaller and less persistent effects than those arising from conventional interest rate surprises.