Revisiting and Extending Beirne et al.’s (2011) Analysis of the Eurosystem’s Covered Bond Purchase Program on Secondary Markets

Building on the ECB’s proprietary research of Beirne et al. (2011), I examine the effectiveness of the Eurosystem’s Covered Bond Purchase Programs 1 to 3 on an aggregate level and use euro-denominated covered bonds issued by British banks as a control group. Covering the whole crisis-cycle of 2008 to 2014, I employ an unobserved component model (UCM) utilizing a random walk stochastic trend. The results of Beirne at al., particularly the initial announcement effects (c. -12 bps for euro denominated covered bonds) are overestimated for CBPP1. The announcements of CBPP2 and 3 yield mixed results for individual countries and insignificant effects for all euro-denominated bonds. The actual implementation of the programs tends to widen covered bond yields, contrary to the Eurosystem’s intention