Quantitative easing and sovereign yield spreads

Euro-area time-varying evidence

António Afonso, João Tovar Jalles

Research output: Contribution to journalArticle

4 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

Fingerprint

Yield spread
Euro area
Quantitative easing
Time-varying
Sovereign bonds
Bond yields
Time-varying coefficient model
Volatility index
Fiscal
Time-varying coefficients
Economic growth
Purchase
Bid/ask spread
Monetary policy
Rating
Refinancing
Policy measures

Keywords

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

Cite this

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title = "Quantitative easing and sovereign yield spreads: Euro-area time-varying evidence",
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.",
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author = "Ant{\'o}nio Afonso and Jalles, {Jo{\~a}o Tovar}",
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T2 - Euro-area time-varying evidence

AU - Afonso, António

AU - Jalles, João Tovar

N1 - Funding agency: UECE (Research Unit on Complexity and Economics), FCT (Fundacao para a Ciencia e a Tecnologia). Grant nr. PTDC/IIM-ECO/5389/2014

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AB - 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.

KW - Fiscal policy

KW - Model selection

KW - Non-conventional monetary policy

KW - Panel data

KW - Sovereign bonds

KW - Time-varying coefficients

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