Working Paper: CEPR ID: DP12635
Authors: Christoph Trebesch; Jeromin Zettelmeyer
Abstract: We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable “twist” of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.
Keywords: Central bank asset purchases; Securities markets programme; Eurozone crisis; Sovereign risk; Market segmentation
JEL Codes: E43; E58; F34; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ECB bond purchases (E58) | yield drop of Greek bonds (E43) |
| ECB bond purchases (E58) | localized effects on specific bonds (H74) |
| ECB bond purchases (E58) | no significant impact on non-targeted bonds (E43) |
| ECB bond purchases (E58) | limited scope of central bank power (E58) |