Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Assets Purchase Program
Martijn (M.I.) Droes (),
Ryan van Lamoen () and
Simona Mattheussens ()
Additional contact information
Martijn (M.I.) Droes: University of Amsterdam & Amsterdam School of Real Estate; Tinbergen Institute, The Netherlands
Ryan van Lamoen: Dutch Central Bank
Simona Mattheussens: Dutch Central Bank
No 17-080/IV, Tinbergen Institute Discussion Papers from Tinbergen Institute
This paper examines whether the ECB's Quantitative Easing (QE) policy is causing government bond prices to deviate from their fundamental value. We use a recent advance in the methodology to measure exuberant price behavior in financial time series introduced by Phillips et al. (2015). We extend this methodology and apply it to government bond prices. The results show that the QE policy substantially inflated government bond prices in Euro Area countries to such an extent that bond prices are no longer in line with the underlying fundamental value. We argue that careful monitoring is required when the QE policy is eventually reversed. The test procedure outlined in this paper provides a monitoring tool to do so.
Keywords: government bond yields; asset price bubbles; monetary policy (search for similar items in EconPapers)
JEL-codes: G12 G15 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20170080
Access Statistics for this paper
More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().