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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.

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  • 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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    3. Christophe Blot & Caroline Bozou & Jérôme Creel & Paul Hubert, 2022. "The Conditional Path of Central Bank Asset Purchases," Working papers 885, Banque de France.
    4. Dwyer, Gerald P. & Gilevska, Biljana & Nieto, Maria J. & Samartín, Margarita, 2023. "The effects of the ECB’s unconventional monetary policies from 2011 to 2018 on banking assets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 87(C).
    5. Christophe Blot & Paul Hubert & Jérôme Creel & Caroline Bozou, 2023. "The conditionality of monetary policy instruments," Working Papers hal-04159848, HAL.
    6. Eleni Argiri & Ifigeneia Skotida, 2021. "The 2021 review of the monetary policy strategy of the Eurosystem: an economy of forces," Economic Bulletin, Bank of Greece, issue 54, pages 23-57, December.
    7. Bank for International Settlements, 2023. "Central bank asset purchases in response to the Covid-19 crisis," CGFS Papers, Bank for International Settlements, number 68, december.
    8. Richard Finlay & Dmitry Titkov & Michelle Xiang, 2022. "The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases," RBA Research Discussion Papers rdp2022-02, Reserve Bank of Australia.
    9. Froemel, Maren & Joyce, Michael & Kaminska, Iryna, 2022. "The local supply channel of QE: evidence from the Bank of England’s gilt purchases," Bank of England working papers 980, Bank of England.
    10. Marco Bernardini & Annalisa De Nicola, 2020. "The market stabilization role of central bank asset purchases: high-frequency evidence from the COVID-19 crisis," Temi di discussione (Economic working papers) 1310, Bank of Italy, Economic Research and International Relations Area.
    11. Dimitris Papageorgiou, 2021. "Macroeconomic effects of shocks to import and services sector prices," Economic Bulletin, Bank of Greece, issue 54, pages 7-21, December.
    12. Richard Finlay & Dmitry Titkov & Michelle Xiang, 2023. "The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases," The Economic Record, The Economic Society of Australia, vol. 99(326), pages 359-384, September.
    13. Marco Bernardini & Antonio M. Conti, 2023. "Announcement and implementation effects of central bank asset purchases," Temi di discussione (Economic working papers) 1435, Bank of Italy, Economic Research and International Relations Area.
    14. Clara De Luigi & Martin Feldkircher & Philipp Poyntner & Helene Schuberth, 2023. "Quantitative Easing and Wealth Inequality: The Asset Price Channel," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(3), pages 638-670, June.
    15. Plessen-Mátyás, Katharina & Kaufmann, Christoph & von Landesberger, Julian, 2021. "Funding behaviour of debt management offices and the ECB’s public sector purchase programme," Working Paper Series 2552, European Central Bank.

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