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The effect of the ECB’s unconventional monetary policy on systemic risks in the eurozone

https://doi.org/10.32609/0042-8736-2023-12-86-102

Abstract

Systemic risks in the framework of central banks’ unconventional monetary policy (UMP) have so far received little attention in the modern economic literature. Based on evidence from the UMP of the European Central Bank (ECB), we contribute to this research area by differentiating systemic risks between materialized systemic risks (financial stress) and their potential level (expected capital shortfall in the banking system during crises). Besides, our paper assesses the asymmetric effects of expansionary and contractionary UMP. The empirical analysis covers the period from 2009 to 2022 and applies structural vector autoregressions with zero and sign constraints on the model parameters. We have found that materialized systemic risks decline in response to expansionary UMP and increase after the ECB’s contractionary measures. Potential systemic risks demonstrate a backlash, and their increase after the expansionary shock outweighs the decrease in response to the contractionary measures in modulus. The research results show the need to combine a long-lasting stimulating UMP together with the tightening measures in ensuring financial stability.

About the Authors

E. P. Dzhagityan
HSE University
Russian Federation

Eduard P. Dzhagityan

Moscow


O. R. Mukhametov
HSE University; Financial Research Institute of the Ministry of Finance of the Russian Federation
Russian Federation

Oscar R. Mukhametov

Moscow


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For citations:

Dzhagityan E.P., Mukhametov O.R. The effect of the ECB’s unconventional monetary policy on systemic risks in the eurozone. Voprosy Ekonomiki. 2023;(12):86-102. (In Russ.) https://doi.org/10.32609/0042-8736-2023-12-86-102

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