Unconventional Monetary Policy Shocks in the Euro Area and the Sovereign-Bank Nexus

40 Pages Posted: 31 Mar 2020

See all articles by Nikolay Hristov

Nikolay Hristov

Deutsche Bundesbank

Oliver Hülsewig

University of Applied Sciences, Munich

Johann Scharler

University of Innsbruck

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.

Keywords: European Central Bank, unconventional monetary policy, panel vector autoregressive model, sovereign-bank nexus

JEL Classification: C320, E300, E520, E580, G210, H630

Suggested Citation

Hristov, Nikolay and Hülsewig, Oliver and Scharler, Johann, Unconventional Monetary Policy Shocks in the Euro Area and the Sovereign-Bank Nexus (2020). CESifo Working Paper No. 8178, Available at SSRN: https://ssrn.com/abstract=3564884

Nikolay Hristov (Contact Author)

Deutsche Bundesbank ( email )

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

Oliver Hülsewig

University of Applied Sciences, Munich ( email )

Am Stadtpark 20
Munich, 81243
Germany

Johann Scharler

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

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