The Implications of a European Central Bank’s Quantitative Easing Program

This Capstone project provided an evaluation of the effects of the European Central Bank’s (ECB) quantitative easing (QE) program on Eurozone financial markets and national economies. The report compared and contrasted the ECB’s program to other QE programs conducted by the Federal Reserve Bank, Bank of England and Bank of Japan.

The second part of the report focused on developing a thorough evaluation of the impact of QE on capital markets through the portfolio and signaling channels. The report presented the impact of the program and its potential spillover effects on several instruments (sovereign, covered and corporate bonds, ABS, equities), and also investigated the implications of QE for various asset holders. By specific request from the client, the last section of the report is dedicated to the impact on the national economies of two periphery countries (Spain and Italy) and two core countries (France and Germany). 

The analysis is organized along three transmission channels:

1. Interest Rate Channel – To what extent will sovereign debt purchases by the ECB filter through each country’s debt markets, lowering interest rates and increasing bank lending for businesses and consumers?

2. Exchange Rate Channel – To what extent will QE bring about a further real depreciation of the Euro and boost the economy by increasing net exports?

3. Signaling Channel – To what extent will the QE program sufficiently increase inflation expectations and confidence among businesses and consumers?

The report concluded with forward-­‐looking statements on the credit implications of QE for the Eurozone capital market and select countries.