The effects of the European Central Bank's quantitative easing on Euro area financial markets and the real economy : a systematic literature review

Abstract

This dissertation analyses the manner with which the euro area real economy and the financial markets therein have been affected by the Quantitative Easing implemented by the European Central Bank since the formal announcement of the Extended Asset Purchase Programme in January 2015. The effects of QE are analysed vis-à-vis inflation, GDP Growth, stock market performance and sovereign bond yields. To ensure the comprehensive nature of this research, the importance of Negative Interest Rate Policies (NIRPs) are taken into consideration, with their effects on the banking sector and macroeconomic variables also being analysed. The methodology employed in this dissertation is the Systematic Literature Review approach. The SLR method facilitates a meta-analysis of the literature via a strict research protocol in order answer a broad range of research question pertaining to multiple variables simultaneously. Both the quantitative and qualitative results for the effects on inflation and GDP Growth were in line with a priori expectations since, for the most part, they were found to be strong and persistent in contributing to these two variables for the three years between Q1 2015 and Q4 2017. Also in line with a priori expectations were the findings that QE succeeded in lowering euro area sovereign bond yields significantly whilst also boosting the performance of European stock markets as evidenced by gains in equity prices and abnormal returns. The findings indicate that NIRPs affected bank lending, bank profitability, investment and demand positively whilst the effects of NIRPs on the exchange rate of the euro require more research. This dissertation highlights the strength of the Portfolio Re-balance and Signalling channels for the transmission of QE in the euro area. The findings of this dissertation, as outlined in its conclusion, suggest areas for future research, whilst also highlighting some findings that may point to the need of the implementation of the Capital Markets Union.