Measuring the Effect of Unconventional Policies on Stock Market Volatility

Our research analyzes the impact of the ECB’s unconventional monetary policy on stock market volatility in four Eurozone countries (France, Germany, Italy and Spain). We estimate Multiplicative Error Models to quantify the part of volatility depending directly on unconventional policies: we distinguish between the announcement effect (through a dummy variable) and the implementation effect (measured by a proxy for securities held for monetary policy purpose). While we observe an increase in volatility on announcement days, we find a negative implementation effect, which provides a remarkable dampening effect in the long term.