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The role of ECB monetary policy and financial stress on Eurozone sovereign yields

Author

Listed:
  • Christophe Blot

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Jérôme Creel

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Paul Hubert

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Fabien Labondance

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract
We investigate the role of both ECB's asset purchases and financial stress during the Eurozone sovereign debt crisis. We explain the evolution of long-term interest rates for the euro area as a whole and for some Member States since the ECB started to purchase securities for monetary policy purposes. We address the potential endogeneity between unconventional monetary policies and financial stress, and control for four categories of fundamentals: macroeconomic, international, financial and expectations. We find that expansionary unconventional monetary shocks have reduced the level of sovereign yields, whereas exogenous shocks to financial stress have had no effect. This result is robust to an ARCH representation, to a longer sample and to a panel estimation. In addition, we show that country-specific financial stress has had a positive impact on the change in sovereign yields, while unconventional monetary shocks have had a negative effect. Our results suggest that ECB's unconventional policies have been effective in mitigating sovereign risks across the different Eurozone countries.

Suggested Citation

  • Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2019. "The role of ECB monetary policy and financial stress on Eurozone sovereign yields," SciencePo Working papers Main hal-03403623, HAL.
    • Handle: RePEc:hal:spmain:hal-03403623
    DOI: 10.1007/s00181-019-01717-1
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03403623
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    Cited by:

    1. Christophe Blot & Jérôme Creel & Emmanuelle Faure & Paul Hubert, 2020. "Setting New Priorities for the ECB's Mandate," SciencePo Working papers Main hal-03403024, HAL.
    2. Christophe Blot & Caroline Bozou & Jérôme Creel & Paul Hubert, 2021. "Are all Central Bank Asset Purchases the Same? Different Rationales, Different Effects," Working Papers hal-03554141, HAL.
    3. Christophe Blot & Paul Hubert & Jérôme Creel & Caroline Bozou, 2023. "The conditionality of monetary policy instruments," EconomiX Working Papers 2023-15, University of Paris Nanterre, EconomiX.
    4. repec:hal:spmain:info:hdl:2441/1f03f28hhu85b9bn1bp8i7g8ie is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/3o6mep11pr9uha5lb808ba3q9n is not listed on IDEAS
    6. Gómez-Puig, Marta & Pieterse-Bloem, Mary & Sosvilla-Rivero, Simón, 2023. "Dynamic connectedness between credit and liquidity risks in euro area sovereign debt markets," Journal of Multinational Financial Management, Elsevier, vol. 68(C).
    7. Eijffinger, Sylvester C.W. & Pieterse-Bloem, Mary, 2023. "Eurozone government bond spreads: A tale of different ECB policy regimes," Journal of International Money and Finance, Elsevier, vol. 139(C).
    8. repec:hal:spmain:info:hdl:2441/3o6mep11pr9uha5lb808ba3q9n is not listed on IDEAS
    9. repec:spo:wpmain:info:hdl:2441/1f03f28hhu85b9bn1bp8i7g8ie is not listed on IDEAS
    10. Alessandro Del Ponte & Paolo Canofari & Audrey De Dominicis, 2021. "Financial and trade relationships between the Eurozone and China in the age of resilience," Asia Europe Journal, Springer, vol. 19(4), pages 489-506, December.
    11. Filardo, Andrew J. & Siklos, Pierre L., 2020. "The cross-border credit channel and lending standards surveys," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 67(C).
    12. Christophe Blot & Fabien Labondance, 2021. "Beyond the Interest Rate Pass-through: Monetary Policy and Banks Interest Rates during the Effective Lower Bound," Working Papers hal-04221606, HAL.
    13. Marta Gómez-Puig & Mary Pieterse-Bloem & Simón Sosvilla-Rivero, 2022. ""Dynamic connectedness between credit and liquidity risks in EMU sovereign debt markets"," IREA Working Papers 202217, University of Barcelona, Research Institute of Applied Economics, revised Oct 2022.
    14. David Tercero‐Lucas, 2023. "Nonstandard monetary policies and bank profitability: The case of Spain," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2248-2277, July.
    15. Christophe Blot & Caroline Bozou & Jérôme Creel & Paul Hubert, 2022. "The Conditional Path of Central Bank Asset Purchases," Working papers 885, Banque de France.

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    More about this item

    Keywords

    Asset purchase programmes; European central bank; Sovereign yields; Monetary policy; Sovereign debt crisis;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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