Cheap Talk and the Efficacy of the ECB’s Securities Market Programme: Did Bond Purchases Matter?

Michiel De Pooter, Robert Martin (), Seth Pruitt () and Rebecca DeSimone

No 1139, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In 2010, in response to an ever-worsening fiscal crisis, the ECB began purchasing sovereign debt from troubled euro-area countries through its Securities Market Programme (SMP). This program was designed to improve market functioning and restore the monetary transmission mechanism within the euro area. This paper does not test those ideals. Rather, we test whether SMP purchases systematically lowered peripheral yields and spreads. We find limited evidence of purchase effects but large announcement effects. In addition, on days in which the ECB was believed to have made large purchases, yields moved down, independent of the size of the ECB's purchases or even if the ECB conducted any purchase at all that week. In all, we conclude that the ECB's SMP influenced yields through a confidence channel rather than through any direct purchase effect. In the appendix to this paper we provide a detailed timeline of SMP purchases and market beliefs about purchase timing.

Keywords: Monetary policy; interest rates; recession; European Central Bank; asset purchases; euro area (search for similar items in EconPapers)
JEL-codes: E20 E43 E52 F44 (search for similar items in EconPapers)
Pages: 99 pages
Date: 2015-07-06
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://dx.doi.org/10.17016/IFDP.2015.1139 http://dx.doi.org/10.17016/IFDP.2015.1139 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1139

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