The Financial and Macroeconomic Effects of the OMT Announcements

This paper evaluates the effects of the 2012 announcements of the ECB’s Outright Monetary Transactions (OMT) programme. Using high frequency data, we find that the OMT announcements decreased the Italian and Spanish two years government bond yields by about two percentage points, while leaving unchanged the bond yields of the same maturity in Germany and France. The results are robust to controlling for all other relevant macroeconomic and financial news released at the time of the announcements. These outcomes are used to calibrate scenarios in a multi-country model describing the macro-financial linkages in France, Germany, Italy and Spain. The scenario analysis suggests that the reduction in bond yields due to the OMT announcements will be associated to a significant increase in real activity, credit and prices in Italy and Spain.