Three essays on the effects of unconventional monetary policy

We propose three essays on the evaluation of the recent measures undertaken by many central banks that go under the name of unconventional monetary policy. In particular, we focus on Large Scale Asset Purchases (LSAP), often referred also as Quantitative easing (QE), texploring the so called portfolio rebalance channel of transmission, that exploits the imperfect substitutability of financial assets and affects the economy through the longer term interest rates. The thesis is structured in three chapters. The first chapter presents a review of the main works that try to assess the effects of unconventional policies both from an empirical and a theoretical point of view. In particular, in the first part we describe the main contributions to the literature that make use of the VAR methodology, emphasizing the different approaches used and the results obtained, classified by geographical area. In the second part of the chapter we turn our attention to theoretical models and describe the main DSGE built in the literature that include the possibility for the central bank to affect the economy by means of purchases of securities, beside or instead of conducting monetary policy in a traditional way controlling the policy rates. In the second chapter, we assess the effects of Large Scale Asset Purchases (LSAP) on the real economy in the euro area by estimating a Structural Vector Autoregression (SVAR) model. We use a recent panel technique developed by Pedroni (2014) that allows us to take into account heterogeneity among members, disentangling shocks that are specific to each member from shocks that are "common" to all members. Our data sample consists of monthly observations for 18 countries for the period from January 2010 to March 2017. Given the difficulty to find an appropriate measure to proxy the central bank's interventions, we follow Kapetanios et al. (2012) and use the change in the long term rates on sovereign bonds. The structural shocks are identified by means of sign restrictions. In the third chapter, we develop a DSGE model with a banking sector and recursive preferences. We base our work on the framework of Ellison and Tischbirek (2014) that allows for a "preferred habitat" channel and for central bank purchases of assets with different maturities. We explore the demand side of the transmission mechanism by introducing recursive preferences à la Epstein-Zin. Disentangling the parameter that governs the intertemporal elasticity of substitution from the one that rules risk aversion, we are able to show how the responses of the real variables to a purchase of long term bonds by the central bank vary as the two parameter change.