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Heterogeneous Effects of Unconventional Monetary Policy on the Bond Yields across the Euro Area

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  • İSHAK DEMİR
  • BURAK A. EROĞLU
  • SEÇİL YILDIRIM‐KARAMAN

Abstract

This paper investigates the impact of the European Central Bank's unconventional monetary policies (UMP) between 2008 and 2019 on European government bond yields. It adopts a novel econometric approach that combines a data‐rich factor analysis and Vector autoregression (VAR) with heteroskedastic‐based identification. The results identify a significant and substantial impact for all countries and maturities, but stronger and persistent impact for the periphery. When we decompose the impact into separate components, we find that UMP decreases the market component for all countries. It decreases the risk‐mutualization component for the periphery permanently at the cost of a small increase for the core countries, which provides evidence for risk‐mutualization in the EMU.

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  • İshak Demi̇r & Burak A. Eroğlu & Seçi̇l Yildirim‐Karaman, 2022. "Heterogeneous Effects of Unconventional Monetary Policy on the Bond Yields across the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1425-1457, August.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:5:p:1425-1457
    DOI: 10.1111/jmcb.12886
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    More about this item

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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