Ultra-Low or Negative Yields on Euro-Area Long-Term Bonds: Causes and Implications for Monetary Policy

CEPS Working Documents, No. 426

19 Pages Posted: 27 Oct 2016

See all articles by Daniel Gros

Daniel Gros

Centre for European Policy Studies, Brussels; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 29, 2016

Abstract

The importance of monetary policy for the current ultra-low interest rates is often over-estimated. As emphasised by ECB President Draghi himself, monetary policy cannot determine long-term rates directly, and its influence on long-term real rates is even more limited and indirect.

Moreover, long-term bond yields have fallen to unprecedented low levels throughout developed countries. The influence of any single central bank on bond yields in its currency area must be quite limited if global capital markets are integrated.

The importance of the ECB’s policy in driving down rates in the euro area is widely assumed to be substantial. But even the ECB does not attribute more than a one percentage point decline in rates to QE. The author of this study believes that the impact of QE has been much smaller, due to the state of global markets.

It is widely accepted that a sudden reversal of rates to ‘normal’ would pose a threat to financial stability, but few believe that this is likely to materialise any time soon.

Keywords: monetary policy, interest rates, long-term bond, euro area, ECB, QE

Suggested Citation

Gros, Daniel, Ultra-Low or Negative Yields on Euro-Area Long-Term Bonds: Causes and Implications for Monetary Policy (September 29, 2016). CEPS Working Documents, No. 426, Available at SSRN: https://ssrn.com/abstract=2859986

Daniel Gros (Contact Author)

Centre for European Policy Studies, Brussels ( email )

1 Place du Congres
B-1000 Brussels, 1000
Belgium

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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