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The Impact of the ECB's Asset Purchase Programmes on Sovereign Bond Spreads in the Euro Area

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  • Gibran Watfe

    () (Academic Assistant, Department of European Economic Studies, College of Europe (Bruges))

Abstract

This paper estimates the immediate impact of the European Central Bank's asset purchase programmes on sovereign bond spreads in the euro area between 2008 and 2015 using a country-by-country GARCH model. The baseline estimates are rigorously diagnosed for misspeci cation and subjected to a wide range of sensitivity tests. Among others, changes in the dependent variable, the independent variables and the number of (G)ARCH terms are tested. Moreover, the model is applied to subsamples and dynamic conditional cor- relations are analyzed to estimate the e ects of the asset purchases on the contagion of spread movements. Generally, it is found that the asset purchase programmes triggered an reduction of sovereign bond spreads. More speci cally, the Securities Markets Programme (SMP) had the most signi cant immediate e ects on sovereign bond spreads across the euro area. The announcements related to the Outright Monetary Transactions (OMT) programme also yielded substantial spread compression in the periphery. In contrast to that, the most recent Public Sector Purchase Programme (PSPP) announced in January 2015 and implemented since March 2015 had no signi cant immediate e ects on sovereign bond spreads, except for Irish spreads. Hence, immediate e ects seem to be dependent upon the size of the programme, the extent to which it targets distressed sovereigns and the way in which it is communicated.

Suggested Citation

  • Gibran Watfe, 2015. "The Impact of the ECB's Asset Purchase Programmes on Sovereign Bond Spreads in the Euro Area," Bruges European Economic Research Papers 35, European Economic Studies Department, College of Europe.
  • Handle: RePEc:coe:wpbeer:35
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    References listed on IDEAS

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    Cited by:

    1. repec:aic:revebs:y:2017:j:19:melnicf is not listed on IDEAS
    2. Goodhead, Robert, 2018. "The Effect of ECB Policy Announcements on Sovereign Yields: A Return to Normal Transmission?," Economic Letters 4/EL/18, Central Bank of Ireland.

    More about this item

    Keywords

    European Central Bank; asset purchase programmes; sovereign bond yield spreads; event study; GARCH model;

    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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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