Working Paper: NBER ID: w23985
Authors: Arvind Krishnamurthy; Stefan Nagel; Annette Vissing-Jorgensen
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% of the reduction in yields, reduced redenomination risk for 13%, and reduced market segmentation effects for 50%. Stock price increases in distressed and core countries suggest that these policies also had beneficial macro-spillovers.
Keywords: ECB Policies; Government Bond Yields; Securities Markets Programme; Outright Monetary Transactions; Long-Term Refinancing Operations
JEL Codes: E4; F45; G01; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ECB policies (E58) | government bond yields (E43) |
| Securities Markets Programme (SMP) (G10) | government bond yields (E43) |
| Outright Monetary Transactions (OMT) (E52) | government bond yields (E43) |
| reduction in default risk (G33) | reduction in government bond yields (E43) |
| reduction in redenomination risk (F31) | reduction in government bond yields (E43) |
| decreased market segmentation effects (F61) | reduction in government bond yields (E43) |
| Securities Markets Programme (SMP) (G10) | beneficial macroeconomic spillovers (F41) |
| Outright Monetary Transactions (OMT) (E52) | beneficial macroeconomic spillovers (F41) |
| Long-Term Refinancing Operations (LTRO) (E52) | reduction in government bond yields (E43) |
| Long-Term Refinancing Operations (LTRO) (E52) | market segmentation effects (F61) |