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Asset purchases and sovereign bond spreads in the euro area during the pandemic

Author

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  • Blotevogel, Robert
  • Hudecz, Gergely
  • Vangelista, Elisabetta

Abstract

We analyse the impact of ECB asset purchases on sovereign bond spreads during the Covid-19 pandemic. Using an enhanced event study design, we trace the impact of asset purchases over time, distinguishing between announcements, expectations, and implementation effects. The analysis draws on a new granular cross-country dataset of the ECB’s asset purchases and market expectations. We find large announcement effects, particularly for countries with lower sovereign credit ratings. Expectations about the final size of ECB asset purchases (‘the stock’) and actually implemented net purchases (‘the flows’) affected sovereign spreads at the time of severe market stress with significant cross-country variations. Overall, the ECB’s asset purchases were highly effective in warding off risks of financial fragmentation in the euro area during the pandemic.

Suggested Citation

  • Blotevogel, Robert & Hudecz, Gergely & Vangelista, Elisabetta, 2024. "Asset purchases and sovereign bond spreads in the euro area during the pandemic," Journal of International Money and Finance, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:jimfin:v:140:y:2024:i:c:s0261560623001791
    DOI: 10.1016/j.jimonfin.2023.102978
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    More about this item

    Keywords

    Event study; Sovereign bond spreads; ECB asset purchases; Stock and flow effects;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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