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The Conditional Path of Central Bank Asset Purchases

Author

Listed:
  • Christophe Blot
  • Caroline Bozou
  • Jérôme Creel
  • Paul Hubert

Abstract

We investigate the financial market effects of central bank asset purchases by exploiting the unique setting provided by ECB’s PSPP and PEPP policies. These programs consist in purchases of identical assets. The PSPP aimed to reduce deflationary risks, while the PEPP was announced to alleviate sovereign risks. We assess the effects of both policies on these two intermediate objectives. We find that the PSPP positively affects inflation swaps whereas the PEPP negatively impacts sovereign spreads. We explore the reasons for these differentiated effects. Making the rationale of a policy clear and credible influences its transmission to asset prices.

Suggested Citation

  • Christophe Blot & Caroline Bozou & Jérôme Creel & Paul Hubert, 2022. "The Conditional Path of Central Bank Asset Purchases," Working papers 885, Banque de France.
    • Handle: RePEc:bfr:banfra:885
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    More about this item

    Keywords

    Monetary Policy; Asset Prices; Central Bank Communication; Central Bank Reaction Function; Intermediate Objectives;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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

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