Dissecting long-term Bund yields in the run-up to the ECB's Public Sector Purchase Programme

Wolfgang Lemke and Thomas Werner

VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: Starting in summer 2014, markets began to build up expectations that the European Central Bank (ECB) would embark on large-scale sovereign bond purchases. The ECB's Public Sector Purchase Programme (PSPP) was eventually announced on 22 January 2015 and purchases started in March. Both during the run-up phase to the PSPP announcement day and for the day itself, German government bond yields declined significantly. Using an affine term structure model, we evidence that the yield declines are almost fully attributable to a decline in the term premium as opposed to the expectations component. This speaks in favour of the conjecture that the PSPP transmits to long-term yields mainly via a portfolio re-balancing channel rather than a (policy rate) signalling channel. The results prove robust against changing the number of factors in the model, the estimation sample and the estimation approach.

Keywords: term structure of interest rates; large-scale asset purchases; term (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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https://www.econstor.eu/bitstream/10419/181594/1/VfS-2018-pid-13773.pdf (application/pdf)

Related works:
Journal Article: Dissecting long-term Bund yields in the run-up to the ECB’s public sector purchase programme (2020)
Working Paper: Dissecting long-term Bund yields in the run-up to the ECB's Public Sector Purchase Programme (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc18:181594

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