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Determining the effectiveness of the Eurosystem’s Covered Bond Purchase Programs on secondary markets

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  • Markmann, Holger
  • Zietz, Joachim

Abstract

We examine the effectiveness of the Eurosystem’s Covered Bond Purchase Programs 1–3 (CBPP1–3) in terms of the spread tightening of Euro-denominated covered bonds against those issued by British banks, which serve as the control group. The study uses weekly data from the beginning of 2006 to the middle of 2015. It makes use of an unobserved components model (structural time series) framework. The announcement effects identified by prior studies for CBPP1 are confirmed. We find them to last five to seven weeks. The announcement effects of CBPP2 and CBPP3 differ from those of CBPP1. Their implementation tends to widen covered bond yields, contrary to the Eurosystem’s objectives, but in line with liquidity expectations. Additionally, we find positive market reactions to unexpected changes in the programs’ eligibility criteria.

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  • Markmann, Holger & Zietz, Joachim, 2017. "Determining the effectiveness of the Eurosystem’s Covered Bond Purchase Programs on secondary markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 314-327.
    • Handle: RePEc:eee:quaeco:v:66:y:2017:i:c:p:314-327
    DOI: 10.1016/j.qref.2017.04.005
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    Cited by:

    1. Richhild Moessner, 2018. "Effects of asset purchases and financial stability measures on term premia in the euro area," Applied Economics, Taylor & Francis Journals, vol. 50(43), pages 4617-4631, September.
    2. Weigerding, Michael, 2023. "Long-term liquidity effects of large-scale asset purchase programs: Evidence from the euro covered bond market," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 244-264.
    3. Avalos, Fernando & Mamatzakis, Emmanuel, 2023. "Is bank resilience affected by unconventional monetary policy in the Euro area?," Journal of International Money and Finance, Elsevier, vol. 130(C).
    4. Bergman, U. Michael & Hutchison, Michael M. & Hougaard Jensen, Svend E., 2019. "European policy and markets: Did policy initiatives stem the sovereign debt crisis in the euro area?," European Journal of Political Economy, Elsevier, vol. 57(C), pages 3-21.
    5. Christoph Wegener & Tobias Basse & Philipp Sibbertsen & Duc Khuong Nguyen, 2019. "Liquidity risk and the covered bond market in times of crisis: empirical evidence from Germany," Annals of Operations Research, Springer, vol. 282(1), pages 407-426, November.
    6. Weigerding, Michael, 2020. "Seasonal liquidity effects and their determinants on the covered bond market," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 288-303.
    7. Fernando Avalos & Emmanuel C Mamatzakis, 2018. "Euro area unconventional monetary policy and bank resilience," BIS Working Papers 754, Bank for International Settlements.
    8. Florentina Melnic, 2017. "The Financial Crisis Response. Comparative Analysis Between European Union And Usa," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 19, pages 129-155, June.
    9. Rischen, Tobias & Theissen, Erik, 2018. "Underpricing in the euro area corporate bond market: New evidence from post-crisis regulation and quantitative easing," CFR Working Papers 18-03, University of Cologne, Centre for Financial Research (CFR).
    10. Rischen, Tobias & Theissen, Erik, 2021. "Underpricing in the euro area bond market: New evidence from post-crisis regulation and quantitative easing," Journal of Financial Intermediation, Elsevier, vol. 46(C).

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    More about this item

    Keywords

    European Central Bank; Covered bond purchase program; Unconventional monetary policy; Unobserved components model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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