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This study examines the effectiveness of European Central Bank asset purchase program (quantitative easing) on the long-term interest rates. In particular, the study evaluates the effectiveness or influence of the European Central Bank’s non-conventional monetary policy tool, quantitative easing (also known as asset purchase program) on the yield of 5-year sovereign government bonds of Eurozone economies. The main objective and the motivation for this study is to provide the compact effects or influence of the quantitative easing in the Eurozone economies, as the current literature on quantitative easing insufficiently covers the effects of quantitative easing in the euro area. The duration of the quantitative easing or asset purchase program is from the end of 2014 until the first quarter of 2017; however, the currently available literature only studies the effects of the asset purchase program until mid of 2016. Very few researches are published after the completion of the quantitative program that estimates or evaluate the complete influence of the program on the long-term interest rates and economic indicators. Whereas, this research provides a complete solution to the literature gap by studying the influence of all the quantitative easing related announcements made by ECB from June 2014 to January 2017, or the whole period of extended asset purchase program conducted by ECB. The research questions that the study aims to answer is that if the ECB announcements related to quantitative easing influence the long-term interest rates via influencing the 5-year government bonds. If the impact on the 5-year government bond yield is only influenced by those ECB announcements that contain new information related to asset purchase program. If the impact of quantitative easing or asset purchase program is larger on the weaker Eurozone economies namely Spain and Italy, as compared to the impact of the same program on stronger Eurozone economies including Germany and France This research uses the event-study analysis methodology. Under the event study method, the research first estimates the abnormal variation in the yield of 5-year government bonds of the four largest Eurozone economies around the announcements made by European Central Bank regarding the quantitative easing or asset purchase program in the monetary policy statement. Later the study evaluates if abnormal variation in 5-year government bond yield around such announcements has statistical and economic significance. The sample of four 5-year government bonds of the four largest economies of Eurozone, namely Germany, France, Spain, and Italy, are considered for the research.. The research made key contributions to the literature on the subject of quantitative easing focused on the euro area. The statistical results of the research conclude that the ECB announcements negatively (decrease) influence the 5-year government bond yields. While the event-study results and the hypothesis revolve around measuring the effectiveness and influence of the non-conventional monetary policy tools used by ECB, the study also discovered a key pattern that the influence of such asset purchase program is much larger on weaker economies of the dataset like Spain and Italy, as compared to strong candidates i.e. Germany and France. The study also discovered that the abnormal variations in yields only occur around those central bank announcement that has a surprise element or that has a new information related the monetary policy. The results of the study also show economic significance. The results show that at the initiation of the asset purchase program or quantitative easing, the inflation rates across Europe were between -1% to 0.8%, which is far below the optimal inflation rate of 2%. However, at the end of asset purchase program in the first quarter of 2017, the monthly inflation rates in Germany, France, Spain and Italy has increased to 2%, 1.4%, 2.6% and 2% respectively. At the beginning of the asset purchase program the quarterly GDP growth rate in sample countries was between -0.2% to 0.4%, whereas, at the end of the asset purchase program or quantitative easing in the second quarter of 2017, the quarterly GDP growth rate of Germany, France, Spain and Italy increased to 0.6%, 0.5%, 0.9% and 0.4% respectively. Hence all the results derived from the event-study analysis are consistent with the hypothesis proposed under this research.
2015 •
On 22 January 2015, the ECB finally announced its expanded asset repurchase programme, better known as quantitative easing (ECB, 2015c). In this thesis, we are examining the effect of this announcement on sovereign bond yields in the Eurozone using the event study methodology and by time series forecasting (ARMA). We are particularly interested to see if there have been some abnormal variations (i.e. changes) in yields following the above-mentioned announcement. Furthermore, we also examine the announcement on 4 September 2014, during which the precursor programmes to QE were announced. We found statistically and economically significant abnormal variations in yields for our event study across all investment grade euro area government bonds, i.e. yields have generally dropped following the announcements. The graphs we obtained using ARMA forecasting help illustrate this.
International Journal of Finance & Economics
Unconventional monetary policies and bank credit in the Eurozone: An events study approach2016 •
The ECB’s expanded asset purchase programme (EAPP) adds the purchase programme for public sector securities to the existing private sector asset purchase programmes to address the risks of a too prolonged period of low inflation. It now consists of a covered bond purchase programme (CBPP3), asset- backed securities purchase programme (ABSPP) and public sector purchase programme (PSPP). However, as the transmission mechanisms of monetary policy remains characterized by long, variable and uncertain time lags, the impact of asset purchases on the real economy continues to be a matter of discussion as confirmed by the slow recovery in bank lending. Some economists even argue that the most effective transmission channel of unconventional monetary policy is the exchange rate. Against this backdrop, the note assesses the effectiveness of the ECB programme of asset purchases one year after its first implementation.
2020 •
This paper conducts an event-study analysis to investigate the relationship between unconventional monetary policy announcements by the ECB and corresponding stock returns in the EMU, furthermore, it also postulates a second hypothesis to ascertain whether this relationship differs for firms listed amongst exchanges in Northern region of the EU name Germany, France and The Netherlands with their Southern Counterparts in the EMU, namely Italy, Portugal and Spain between 2006 and 2015. 10-year Government bond yields for Italy and Germany are used to calculate the surprise coefficient, while the returns are calculated from the return’s indices of the firms on the CAC, PSI, IBEX, DAX, AEX, and MIB30. The significance of the variations of the Returns are tested with Wilcoxon and GRANK tests (Non- Parametric) for AARs and CAARs respectively. The results suggest that there is a relationship between an unconventional monetary policy announcement and stock returns. The results also indicate ...
SSRN Electronic Journal
Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Asset Purchase Program2017 •
2019 •
The Journal of Financial Crises
European Central Bank Tools and Policy Actions B: Asset Purchase Programs2019 •
2020 •
The decision of the Bundesverfassungsgericht of May 5th 2020 on ECB has already been criticized from different point of views. The majority of the critics are focused on the institutional consequences of the judgment. This article aims at highlighting some intrinsic contradictions of the decision that make it unsustainable. The inconsistencies regard various profiles: the addressee of the decision, the definition of the CJEU ruling as an ultra-vires judgment, the nature of the functions of ECB, the denied repercussions on the Purchase Program related to the Coronavirus crisis. Finally, the article tries to draw some hypotheses about what the reactions and the consequences of this decision might be.
2018 •
Since March 2015, the ECB adopted unconventional policy measures aiming to increase inflation at its target level. There is much discussion on the effectiveness of the Asset Purchase Program of the ECB, since real outcomes are hard to observe. This paper analyzes the effect of the unconventional policy measures of the ECB on the European bond market, using a time series panel data regression comprising observation for 10 EMU countries participating in the Private Sector Purchase Program for the period of January 2014 till March 2018. Furthermore, 4 countries are added as a control group to make the outcomes more robust. As many papers focus on the announcement effect and show a temporary relation between QE and bond yields, this paper shows that the PSPP program is able to lower bond yields on a permanent level. During the PSPP, purchases were not equally divided across European countries due to imposed regulations of the ECB, causing discussion across participating countries. This ...
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