Domestic and International Macroeconomic Effects of the Eurosystem Expanded Asset Purchase Programme

Abstract

This paper evaluates the domestic and international macroeconomic effects of purchases of domestic long-term sovereign bonds by the Eurosystem. To this end, we calibrate a five-country dynamic general equilibrium model of the world economy. According to our results, the sovereign bond purchases would generate an increase in economic activity and in inflation in the euro area of about one percentage point in the first two years by inducing a fall in the long-term interest rates and an increase in liquidity. International spillovers may be nontrivial and expansionary, depending on the monetary policy stance of the partner countries and on the response of international relative prices.

Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound

JEL Classification: E43, E44, E52, E58