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

António Afonso, João Tovar Jalles

Research output: Contribution to journalArticle

5 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)208-224
JournalJournal of International Financial Markets, Institutions and Money
Volume58
DOIs
Publication statusPublished - Jan 2019

Keywords

  • Fiscal policy
  • Model selection
  • Non-conventional monetary policy
  • Panel data
  • Sovereign bonds
  • Time-varying coefficients

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