Carlo Altavillaa,b, Giacomo Carbonia, and Roberto Mottoa
We estimate the effects of the asset purchase program launched by the European Central Bank (ECB) in 2015 on euro-area bond yields and assess its transmission channels. Our identification strategy rests on exploiting market reactions to news about the size and maturity range of asset purchases and cross-sectional variations in security-level data on prices and purchased quantities. We find that ECB asset purchases amounting to 10 percent of euro-area GDP compress euro-area 10-year sovereign bond yields by around 65 basis points ("stock effects"), which is a sizable impact, also in light of the low financial distress prevailing at the time. Bonds more exposed to interest rate risk (duration risk channel) and with lower creditworthiness (credit risk channel) experienced the highest returns. Local supply channels, narrowly related to the intensity of purchases in targeted market segments, are estimated to play a more limited role. Our findings provide support to theories that posit how low financial distress, while weakening local supply channels, facilitates the transmission of quantitative easing beyond targeted segments. The implication is that asset purchases are a viable policy tool under both high and low financial distress although the transmission channels are different.
JEL Code: E43, E44, E52, E65, G14.
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a European Central Bank
b CEPR