Quantitative easing and sovereign yield spreads: Euro-area time-varying evidence

Antonio Afonso and Joao Jalles

Journal of International Financial Markets, Institutions and Money, 2019, vol. 58, issue C, 208-224

Abstract: We assess the determinants of sovereign bond yield spreads in the period 1999:01–2016:07, considering non-conventional monetary policy measures in the Euro area. We use a 2-step approach to: (i) confirm and estimate the determinants of sovereign bond yield spreads; (ii) compute bivariate time-varying coefficient (TVC) models of each determinant and analyse the temporal dynamics. The baseline determinants of sovereign bond yield spreads in the Euro area are the bid-ask spread, the VIX, fiscal developments and rating developments, REER, and economic growth. QE measures implemented by the ECB in the aftermath of the crisis are also relevant. From the TVC analysis, the Covered Bond Purchase Programme contributed to reduce yield spreads, particularly in the 2011–2013 period. Longer-term refinancing operations contributed to reduce yield spreads in most countries.

Keywords: Sovereign bonds; Fiscal policy; Non-conventional monetary policy; Time-varying coefficients; Model selection; Panel data (search for similar items in EconPapers)
JEL-codes: C23 E52 E62 G10 H63 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (35)

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Related works:
Working Paper: Quantitative Easing and Sovereign Yield Spreads: Euro-Area Time-Varying Evidence (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:58:y:2019:i:c:p:208-224

DOI: 10.1016/j.intfin.2018.10.003

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