Euro Depreciating Compared to Real GDP Rising: An Assessment of the Effectiveness of QE on the Euro Area Economy

Abstract

The effectiveness of QE is difficult to assess thoroughly. Event studies, on the one hand, capture a snapshot around the introduction of new measures that omits the potential anticipation of the policy as well as delayed transmission to economic variables. Empirical studies over a longer horizon, on the other hand, face the restriction that the ECB programme is still evolving and that other factors, such as changes in commodity prices, or the developments in Emerging Markets, have affected the EA economy throughout the duration of QE. Against the background of these difficulties, we use a macroeconomic model to simulate the transmission of QE to financial markets and macroeconomic variables. The model extends previous theoretical work on QE by adopting an open-economy perspective that links the EA to the rest of the world (RoW) through trade and financial flows.