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Flow Effects of Central Bank Asset Purchases on Sovereign Bond Prices: Evidence from a Natural Experiment

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  • ROBERTO A. DE SANTIS
  • FÉDÉRIC HOLM‐HADULLA

Abstract

We estimate the response of sovereign bond prices to net supply shocks caused by purchase operations under the ECB's Public Sector Purchase Programme (PSPP). To avoid simultaneity bias in the estimated relationship between prices and purchases, we exploit a PSPP feature that renders securities temporarily ineligible for reasons unrelated to their prices. Using these purchase restrictions as an instrument to identify exogenous variation in purchase volumes, we find that PSPP causes statistically significant and economically relevant upward price impacts. The impacts are short‐lived and concentrated in securities issued by higher yield jurisdictions and characterized by higher maturity and lower liquidity.

Suggested Citation

  • Roberto A. De Santis & Fédéric Holm‐Hadulla, 2020. "Flow Effects of Central Bank Asset Purchases on Sovereign Bond Prices: Evidence from a Natural Experiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1467-1491, September.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:6:p:1467-1491
    DOI: 10.1111/jmcb.12665
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    References listed on IDEAS

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