Stabilising Market Expectations through a Market Tool: a Proposal for An Enhanced TPI

20 Pages Posted: 9 Jan 2023

See all articles by Massimo Amato

Massimo Amato

Bocconi University - Department of Policy Analysis and Public Management

Everardo Belloni

Politecnico di Milano-Dipartimento Ingegneria Gestionale

Carlo A. Favero

Bocconi University - Department of Economics; Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Lucio Gobbi

University of Trento - Department of Economics and Management; Università di Trento

Francesco Saraceno

Observatoire Francais des Conjonctures Economiques, Paris (OFCE)

Date Written: January 6, 2023

Abstract

This paper puts forward a proposal to complete the ECB Transmission Protection Mechanism (TPI) with the aim of making it more effective in anchoring the yields of European sovereign debts to Member States’ fundamentals. We use a model in which yields fluctuate within bands, which we specify following two alternative approaches: stochastic and deterministic. The resulting fluctuation's interval represents the range of yields that can be seen as justified by Member States’ fundamentals; yields outside the band would instead trigger the ECB intervention as foreseen by the TPI. The proposal minimizes the risk of moral hazard, as the fluctuation bands vary as each country's creditworthiness changes. Moreover, the proposal is directly implementable with existing Treaties.

Keywords: TPI, European Debt Agency, Safe Asset, Eurobonds, Public Debt, Financial Stability

JEL Classification: G2, G28, H63, H81

Suggested Citation

Amato, Massimo and Belloni, Everardo and Favero, Carlo A. and Gobbi, Lucio and Saraceno, Francesco, Stabilising Market Expectations through a Market Tool: a Proposal for An Enhanced TPI (January 6, 2023). Available at SSRN: https://ssrn.com/abstract=4319923 or http://dx.doi.org/10.2139/ssrn.4319923

Massimo Amato

Bocconi University - Department of Policy Analysis and Public Management ( email )

Via Roentgen 1
Milan, 20136
Italy

Everardo Belloni

Politecnico di Milano-Dipartimento Ingegneria Gestionale

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

Carlo A. Favero

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://www.igier.unibocconi.it\favero

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Lucio Gobbi (Contact Author)

University of Trento - Department of Economics and Management ( email )

Via Inama 5
Trento, I-38100
Italy

Università di Trento ( email )

via G. Verdi, 53
Trento, TN 38122
Italy

Francesco Saraceno

Observatoire Francais des Conjonctures Economiques, Paris (OFCE) ( email )

69 Quai d'Orsay
75007 Paris
France

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