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ECB Policies Involving Government Bond Purchases: Impact and Channels

Author

Listed:
  • Krishnamurthy, Arvind

    (Stanford University)

  • Nagel, Stefan

    (University of Chicago)

  • Vissing-Jorgensen, Annette

    (University of California, Berkeley)

Abstract

We evaluate the effects of three ECB policies (the Securities Markets Programme, the Outright Monetary Transactions, and the Long-Term Refinancing Operations) on government bond yields. We use a novel Kalman-filter augmented event-study approach and yields on euro-denominated sovereign bonds, dollar-denominated sovereign bonds, corporate bonds, and corporate CDS rates to understand the channels through which policies reduced sovereign bond yields. On average across Italy, Spain and Portugal, considering both the Securities Markets Programme and the Outright Monetary Transactions, yields fall considerably. Decomposing this fall, default risk accounts for 37%, redenomination risk accounts for 13%, and market segmentation effects accounts for 50%. In Italy, Spain and Portugal, the default risk premium and market segmentation channel were the dominant policy channels. The redenomination risk premium channel also contributed for Spain and Portugal, but not Italy. Stock price increases in distressed and core countries suggest that these policies also had beneficial macro-spillovers.

Suggested Citation

  • Krishnamurthy, Arvind & Nagel, Stefan & Vissing-Jorgensen, Annette, 2017. "ECB Policies Involving Government Bond Purchases: Impact and Channels," Research Papers repec:ecl:stabus:3578, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:repec:ecl:stabus:3578
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    References listed on IDEAS

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    Cited by:

    1. Domenico Lombardi, Pierre Siklos, Samantha St. Amand, 2018. "Asset Price Spillovers From Unconventional Monetary Policy: A Global Empirical Perspective," LCERPA Working Papers 0109, Laurier Centre for Economic Research and Policy Analysis, revised 30 Jan 2018.
    2. Michael Bleaney & Veronica Veleanu, 2017. "Currency risk in corporate bond spreads in the eurozone," Discussion Papers 2017/07, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    3. Andrea Zaghini, 2017. "The CSPP at work: yield heterogeneity and the portfolio rebalancing channel," Temi di discussione (Economic working papers) 1157, Bank of Italy, Economic Research and International Relations Area.
    4. Eidam, Frederik, 2018. "Gap-filling government debt maturity choice," ZEW Discussion Papers 18-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. repec:eee:eecrev:v:100:y:2017:i:c:p:337-363 is not listed on IDEAS
    6. Jean-Marie Meier, 2017. "Regulatory Integration of International Capital Markets," Working Papers 214, Oesterreichische Nationalbank (Austrian Central Bank).

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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