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Tracing the impact of the ECB’s asset purchase programme on the yield curve

Author

Listed:
  • Eser, Fabian
  • Lemke, Wolfgang
  • Nyholm, Ken
  • Radde, Sören
  • Vladu, Andreea Liliana

Abstract

We trace the impact of the ECB’s asset purchase programme (APP) on the sovereign yield curve. Exploiting granular information on sectoral asset holdings and ECB asset purchases, we construct a novel measure of the “free-float of duration risk” borne by price-sensitive investors. We include this supply variable in an arbitrage-free term structure model in which central bank purchases reduce the free-float of duration risk and hence compress term premia of yields. We estimate the stock of current and expected future APP holdings to reduce the 10y term premium by 95 bps. This reduction is persistent, with a half-life of five years. The expected length of the reinvestment period after APP net purchases is found to have a significant impact on term premia. JEL Classification: C5, E43, E52, E58, G12

Suggested Citation

  • Eser, Fabian & Lemke, Wolfgang & Nyholm, Ken & Radde, Sören & Vladu, Andreea Liliana, 2019. "Tracing the impact of the ECB’s asset purchase programme on the yield curve," Working Paper Series 2293, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20192293
    Note: 1510422
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2293~41f7613883.en.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Stephanie Titzck & Jan Willem van den End, 2019. "The impact of size, composition and duration of the central bank balance sheet on inflation expectations and market prices," DNB Working Papers 627, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    central bank asset purchases; European Central Bank; non-standard monetary policy measures; term premia; term structure of interest rates;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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