The Impact of ECB’s Unconventional Monetary Policy on the German Stock Market Volatility

Abstract This study investigated the reaction of German stock market volatility (Dax index) to European Central Bank (ECB)’s unconventional monetary policy (UMP) announcements. The financial crisis 2008 proved that traditional policy’s tool (the short -term interest rate) has lost its effectiveness meet new challenges. So, key central banks, ECB included, had implement new, untested and nonstandard which so called policy. In this study, we used ECB’s shadow rate approach extract Also, We employed GJR GARCH (p,o,q) model estimate in market. Then calibrated both OLS (linear regression) Markov-switching (probability-matrix regime changes) models examine returns UMP announcement by for a period from January 2006 December 2019. results delivered showed strong negative effect on past significant dependent variable, while is function global estimated VIX index. Moreover, regression provides better illustration impact than because it can represent changes into two different regimes named ordinary quantitative easing (crisis) regime. Furthermore, under model, see how output gap inflation influence Dax index, there no relationship between with volatility.