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Euro Area Government Bond Yield and Liquidity Dependence during different Monetary Policy Accommodation Phases

Linas Jurksas () and Hector Carcel ()
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Linas Jurksas: Vilnius University & Bank of Lithuania

No 60, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: In this paper, we analyze the relationship between various risk factors and euro area government bond yield spreads, focusing particularly on the monetary policy stance. Our results show that credit and common risk factors are consistently priced in government bond yield spreads, while liquidity differentials are relevant especially during periods of stressed market conditions. We demonstrate that the liquidity component has been more prominent during periods of declining interest rates and increasing reserves, while it has diminished on announcement days of monetary policy decisions related to PSPP. Overall, the liquidity component has been statistically insignificant since the announcement of accommodative non-standard monetary policy measures.

Keywords: monetary policy; liquidity; government bonds; yield spreads; panel analysis (search for similar items in EconPapers)
JEL-codes: C23 E62 H50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
Date: 2019-05-27
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