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Sovereign bond holdings and monetary policy operations in the euro area

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  • Arnold, Ivo J.M.
  • Soederhuizen, Beau

Abstract

This paper investigates the relationship between sovereign bond holdings of banks and refinancing operations by the ECB for countries in the euro area. We use data collected by Bruegel as well as a new dataset compiled from the annual statements of national central banks to estimate panel regression models. Our findings support the hypothesis that the ECB’s refinancing operations have increased resident banks’ exposure to domestic sovereign bonds. This is in line with the moral suasion theory advanced in the literature. These results strengthen the case for regulatory changes aimed at reducing the sensitivity of banks to sovereign risk.

Suggested Citation

  • Arnold, Ivo J.M. & Soederhuizen, Beau, 2018. "Sovereign bond holdings and monetary policy operations in the euro area," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1243-1254.
    • Handle: RePEc:eee:jpolmo:v:40:y:2018:i:6:p:1243-1254
    DOI: 10.1016/j.jpolmod.2018.05.004
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    Cited by:

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    2. Ivo Arnold, 2021. "An Interest Stabilisation Mechanism to Unburden the ECB," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(5), pages 274-277, September.
    3. Boonman, Tjeerd & Litsios, Ioannis & Pilbeam, Keith & Pouliot, William, 2022. "Modelling the trade balance between the northern and southern eurozone using an intertemporal approach," Journal of International Money and Finance, Elsevier, vol. 121(C).
    4. Borrallo Egea, Fructuoso & Hierro, Luis Ángel, 2019. "Transmission of monetary policy in the US and EU in times of expansion and crisis," Journal of Policy Modeling, Elsevier, vol. 41(4), pages 763-783.

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    More about this item

    Keywords

    Monetary policy; Sovereign bonds; Banking system; Euro crisis;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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