New transmission channels of ECB's unconventional monetary policies

Following the zero-lower bound on interest rates, many central banks turned to increasing the size of their balance sheet to achieve their mandate of price stability and low unemployment. Using the euro area as a case study, we investigate the macroeconomic effects and the transmission channels of the balance sheet expansion by way of a Bayesian VAR model. We identified the BVAR model by imposing sign restrictions on the impulse responses of control variables while leaving our variables of interest unconstrained. We find that the balance sheet expansion caused a higher increase in output than prices. These positive effects were transmitted through the wealth channel, the bank lending channel, and the fiscal channel.