Tracing the Impact of the ECB’s Asset Purchase Programme on the Yield Curve

57 Pages Posted: 9 Jul 2019

See all articles by Fabian Eser

Fabian Eser

European Central Bank (ECB)

Wolfgang Lemke

European Central Bank

Ken Nyholm

European Central Bank (ECB)

Soeren Radde

Goldman Sachs - Goldman Sachs

Andreea Vladu

Deutsche Bundesbank

Date Written: July 8, 2019

Abstract

We trace the impact of the ECB’s asset purchase programme (APP) on the sovereign yield curve. Exploiting granular information on sectoral asset holdings and ECB asset purchases, we construct a novel measure of the “free-float of duration risk” borne by price-sensitive investors. We include this supply variable in an arbitrage-free term structure model in which central bank purchases reduce the free-float of duration risk and hence compress term premia of yields. We estimate the stock of current and expected future APP holdings to reduce the 10y term premium by 95 bps. This reduction is persistent, with a half-life of five years. The expected length of the reinvestment period after APP net purchases is found to have a significant impact on term premia.

Keywords: term structure of interest rates, term premia, central bank asset purchases, non-standard monetary policy measures, European Central Bank

JEL Classification: C5, E43, E52, E58, G12

Suggested Citation

Eser, Fabian and Lemke, Wolfgang and Nyholm, Ken and Radde, Soeren and Vladu, Andreea, Tracing the Impact of the ECB’s Asset Purchase Programme on the Yield Curve (July 8, 2019). ECB Working Paper No. 2293 (2019); ISBN 978-92-899-3555-5 . Available at SSRN: https://ssrn.com/abstract=3417070

Fabian Eser

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Wolfgang Lemke (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ken Nyholm

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Soeren Radde

Goldman Sachs - Goldman Sachs ( email )

Andreea Vladu

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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