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Quantitative Easing in the Euro Area - An Event Study Approach

Author

Listed:
  • Florian Urbschat
  • Sebastian Watzka

Abstract

We examine the effects of the Asset Purchase Programme (APP) gradually introduced by the European Central Bank from September 2014 onwards. Studying the short-term reaction of financial markets after APP press releases, we analyse the development of bond yields and spreads around these releases. More precisely, we try to estimate different asset price channels by quantifying the cumulative decrease of spreads and by running event regressions for several Euro Area countries. Focusing on the signalling channel, measured by the OIS rate, and the portfolio rebalancing channel, proxied by the conditional bond-OIS spread, we find that the effects in yield and spread reduction were most pronounced for the initial announcement on the Public Sector Purchase Programme (PSPP) but declined afterwards for additional announcements. Possible explanations for this are the declining degree to which the ECB surprised markets and the increasingly burdensome institutional set-up of the APP. While yield reductions were larger for periphery countries’ than for core countries’ bonds, our evidence suggests that this stronger reduction is mostly due to a decreasing risk component of southern bonds. In fact, once controlling for this implicit credit risk reduction we find rather mild effects from portfolio rebalancing for all countries.

Suggested Citation

  • Florian Urbschat & Sebastian Watzka, 2017. "Quantitative Easing in the Euro Area - An Event Study Approach," CESifo Working Paper Series 6709, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6709
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp6709.pdf
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    Cited by:

    1. repec:cbi:qtbart:y:2019:m:04:p:78-100 is not listed on IDEAS
    2. Jan Willem van den End, 2019. "Effects of QE on sovereign bond spreads through the safe asset channel," DNB Working Papers 647, Netherlands Central Bank, Research Department.
    3. Mucai Lin & Linlin Niu, 2019. "Echo over the Great Wall: Spillover Effects of QE Announcements on Chinese Yield Curve," Working Papers 2019-05-17, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    4. repec:wfo:monber:y:2019:i:8:p:583-597 is not listed on IDEAS

    More about this item

    Keywords

    large scale asset purchase; yield curve; quantitative easing; APP; event study;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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