Tracing the Impact of the ECB’s Asset Purchase Program on the Yield Curve

Fabian Eser, Wolfgang Lemke, Ken Nyholm, Sören Radde and Andreea Liliana Vladu
Additional contact information
Fabian Eser: European Central Bank
Ken Nyholm: European Central Bank
Sören Radde: Point72
Andreea Liliana Vladu: European Central Bank

International Journal of Central Banking, 2023, vol. 19, issue 3, 359-422

Abstract: We trace the impact of the European Central Bank’s (ECB) asset purchase program (APP) on the yield curve. Exploiting granular information on sectoral asset holdings and ECB asset purchases, we construct a novel measure of the “freefloat of duration risk” borne by arbitrageurs. We include this supply variable in an arbitrage-free term structure model in which central bank purchases reduce the free-float of duration risk and hence compress term premia. We estimate the stock of current and expected future APP holdings to reduce the 10-year yield by almost 1 percentage point. This reduction is persistent, with a half-life of five years.

JEL-codes: C5 E43 E52 E58 G12 (search for similar items in EconPapers)
Date: 2023
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http://www.ijcb.org/journal/ijcb23q3a9.pdf (application/pdf)

Related works:
Working Paper: Tracing the impact of the ECB's asset purchase programme on the yield curve (2020)
Working Paper: Tracing the impact of the ECB’s asset purchase programme on the yield curve (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:3:a:9

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