Monetary Adjustment Heterogeneity in the EU under the Perils of Quantitative Easing: A Non-Stationary Heterogeneous Panel Approach

This paper investigates the impact of quantitative easing (QE) on the money supply (MS) and examines how liquidity control affected gross domestic product (GDP) in the EU under different exchange rate regimes in the 2014Q1-2023Q1 time horizon. The sample is structured of two groups of EU countries differentiated by the level of monetary autonomy:EZ members (Austria, Belgium, France, Germany, Netherlands, Italy, and Spain) and emerging monetary autonomous EU economies (Czech, Hungary, Poland, and Romania).Using the Pooled Mean Group (PMG) dynamic heterogeneous panel approach we test if a positive impact on GDP depends on QE, assuming this relationship is sensitive to QE's influence on MS.Our findings suggest that ECB's disciplined monetary framework ensured higher liquidity control mitigating inflationary pressures while supporting economic stability.In contrast, the flexible monetary policy of autonomous EU countries contributed to excess liquidity hindering economic growth.