How QE changes the nature of sovereign risk

Dirk Broeders, Leo de Haan and Jan Willem End

Working Papers from DNB

Abstract: We examine the effect of Quantitative Easing (QE) by the ECB on the sovereign bond risks of Italy, Ireland, Spain and Portugal. First, outcomes of panel regression models suggest that QE lowered the effect of volatility on sovereign bond spreads by 1 to 2 percentage points. Compared to asset purchases aimed at easing the monetary stance, purchase programmes supporting monetary transmission by countering financial market stress most clearly reduced the effect of volatility on spreads. Second, using a contingent claims model (CCM), the values of the implicit put options provided by QE as a backstop to investors are calculated to be substantial. Our results guide policymakers on the use of backstop facilities for sovereign bond markets.

Keywords: Quantitative Easing; Sovereign risk; Sovereign spreads; Contingent Claims Model (search for similar items in EconPapers)
JEL-codes: E52 E58 G12 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mon and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.dnb.nl/media/nfelbviu/working_paper_no-_737.pdf

Related works:
Journal Article: How quantitative easing changes the nature of sovereign risk (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:737

Access Statistics for this paper

More papers in Working Papers from DNB Contact information at EDIRC.
Bibliographic data for series maintained by DNB ().