The Impact of ECB Monetary Policy on Stock and Bond Market Liquidity. The Case of Germany

Tesis (Bachelor) , 2015 , 33 Páginas , Calificación: 1,0

Economía - Finanzas

During the financial crisis and the following Eurozone crisis, liquidity in financial markets basically froze and became a problem for the real economy. Therefore, market liquidity became one of the major concerns of the ECB, which applied non-standard measures, e.g. irregular asset purchasing programmes. This paper sheds light on the impact of monetary policy on liquidity levels of the DAX 30 equity index and German 10-year government bonds.

For the following analysis, the monetary policy impacts are estimated using the base money growth rate and EONIA rate, whereas the relative bid-ask spread is employed for measuring liquidity levels. The research method includes literature-based research about common market liquidity theories, a short timeline of important ECB monetary policy decisions, descriptive statistics on liquidity levels and monetary policy variables and a VAR analysis, including variables spreads, returns, volatilities, industrial production and inflation.

The results indicate that a decrease (increase) in stock market liquidity or an increase (decrease) in bondmarket volatility lead to a decrease (increase) of EONIA. Furthermore, decreases (increases) in stock return or industrial production result in a decrease (increase) of EONIA. However, base money growth is positively correlated only to changes in bond market volatility. Overall, the results suggest that the monetary policy decisions by the ECB are influenced by changing market conditions without the ability to forecast liquidity levels.

Inhaltsverzeichnis (Table of Contents)

• 1. Introduction
• 2. Theory.
  • 2.1 Market Liquidity
  • 2.2 Stock and Bond Market Liquidity.
  • 2.3 Market Liquidity Measures
  • 2.4 Monetary Policy and Market Liquidity
  • 2.5 Monetary Policy Measures ....
• 3. Timeline of Monetary Policy Events
• 4. Empirical Evidence
  • 4.1 Descriptive Statistics on Liquidity Levels
  • 4.2 Descriptive Statistics on ECB Monetary Policy Indictors.
  • 4.3 Vector Autoregressive Analysis .........
• 5. Conclusion..........\n

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper examines the impact of ECB monetary policy on the liquidity levels of the German DAX 30 equity index and German 10-year government bonds. It aims to understand how changes in ECB monetary policy influence liquidity in these markets and to determine if additional variables, such as volatility, return, industrial production, and inflation, also play a role in influencing liquidity.

• The impact of ECB monetary policy on market liquidity
• The relationship between liquidity levels and monetary policy measures
• The influence of additional variables (volatility, return, industrial production, and inflation) on market liquidity
• The role of market liquidity in economic stability
• The implications of monetary policy decisions for market participants

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: This chapter introduces the topic of market liquidity and its importance in the context of the financial crisis and the Eurozone crisis. It highlights the concerns about market liquidity in recent years and outlines the objectives of the paper.
• Theory: This chapter provides a theoretical framework for understanding market liquidity, discussing its definition, measures, and relationship with monetary policy. It explores how monetary policy measures can influence liquidity levels in both stock and bond markets.
• Timeline of Monetary Policy Events: This chapter presents a chronological overview of major monetary policy decisions made by the ECB, providing context for the empirical analysis that follows.
• Empirical Evidence: This chapter presents descriptive statistics on liquidity levels and ECB monetary policy indicators, followed by a Vector Autoregressive Analysis (VAR) to examine the relationships between variables and the impact of monetary policy on liquidity.

Schlüsselwörter (Keywords)

This research focuses on the impact of ECB monetary policy on market liquidity, specifically examining the German DAX 30 equity index and German 10-year government bonds. The paper explores the relationship between monetary policy measures, market liquidity levels, and additional variables such as volatility, return, industrial production, and inflation. Key concepts include market liquidity, monetary policy, interest rates, base money growth, bid-ask spreads, VAR analysis, and the role of liquidity in economic stability.

• Universidad: Vienna University of Economics and Business (Finance and Accounting)
• Calificación: 1,0
• Autor: Terence Kappeln (Autor)
• Año de publicación: 2015
• Páginas: 33
• No. de catálogo: V313683
• ISBN (Ebook): 9783668126770
• ISBN (Libro): 9783668126787
• Idioma: Inglés
• Etiqueta: ECB Monetary Policy DAX30 Germany Bonds Market Liquidty Financial Econometrics Base Money Growth EONIA Spreads