Working Paper: CEPR ID: DP9778
Authors: Eric Ghysels; Julien Idier; Simone Manganelli; Olivier Vergote
Abstract: Policy impact studies often suffer from endogeneity problems. Consider the case of the ECB Securities Markets Programme. If Eurosystem interventions were triggered by sudden and strong price deteriorations, looking at daily (or weekly) price changes may bias downwards the correlation between yields and the amounts of bonds purchased. Simple regression of daily changes in yields on quantities often give insignificant or even positive coefficients and therefore suggest that SMP interventions have been ineffective, or worse counterproductive. We use high frequency data on purchases of the ECB Securities Markets Programme and sovereign bond quotes to address the endogeneity issues. We propose an econometric model that considers, simultaneously, first and second conditional moments of market price returns at daily and intradaily frequency. Each component of our new econometric model is extended with SMP purchases such that the SMP impact is measured both on yield variations and volatility, and at both daily and intradaily frequency. We find that SMP interventions do not have a significant impact on changes in yields at daily frequency, but when running the same regression with intraday data sampled at 15 minutes interval, we find the expected negative sign. Our empirical investigation reveals also that SMP purchases succeeded in reducing volatility of government bond yields of the countries under the programme. These results are in line with the programme objective of addressing market malfunctioning. Finally, the new econometric model we introduce is of general interest.
Keywords: Securities Markets Programme; ECB; High Frequency Data; Bond Yields; Volatility
JEL Codes: E58; G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SMP purchases (L14) | lower yields (Q15) |
| SMP purchases (L14) | reduced volatility of government bond yields (E43) |
| SMP interventions do not significantly impact changes in yields at daily frequency (C22) | insignificant or positive coefficients (C20) |
| high-frequency data (C55) | clearer picture of effectiveness of SMP interventions (C90) |