ECB’s Unconventional Monetary Policy and Cross-Financial-Market Correlation Dynamics

This paper examines the effects of the unconventional monetary policy (UMP) launched by the European Central Bank on the cross-market correlations between bond, stock and currency forward markets. Using a dynamic conditional correlation analysis and several robustness tests, we investigate possible differences on the correlation dynamics across four UMP periods and across a range of developed countries and emerging market economies. The empirical results indicate a spillover effect on both developed and emerging markets, although this impact is not identical across assets and countries. We also find that the new UMP phase started in 2014 has a more prominent impact, highlighting differences on the impact between the earlier and the new wave of UMPs and across cross-market correlations