Abstract

THE EFFECTIVENESS OF THE ECB’S ASSET PURCHASE PROGRAMS OF 2009 TO 2012

Heather D. Gibson

Bank of Greece

Stephen G. Hall

University of Leicester

Bank of Greece

George S. Tavlas

Bank of Greece

University of Leicester

ABSTRACT

We examine the impact of the ECB’s Securities Market Program (SMP) and the ECB’s two Covered Bond Purchase Programs (CBPPs) on sovereign bond spreads and covered-bond prices, respectively, for five euro-area stressed countries -- Greece, Ireland, Italy, Portugal, and Spain. Our data are monthly and cover the period from 2004M01 through 2014M07. In contrast to previous studies, we use actual, confidential, intervention data. Our results indicate that the respective asset purchase programs reduced sovereign spreads and raised covered bond prices. The quantitative effects of the programs were modest in magnitude, but nevertheless significant. We also provide a simple theoretical model that explains why official asset purchases can reduce a country’s default-risk spreads.

Keywords: Monetary-policy effectiveness, ECB’s asset purchase programs, euro-area crisis.

JEL Classification: E43, E51, E52, E63, F33, F41, G01, G12

Acknowledgements: We have benefitted from extremely helpful comments by Harris Dellas, Daniel Thornton, and the referee. We are also very grateful to the staff of the ECB’s Monetary Policy Operations Department for making available to us confidential data on the ECB’s asset purchase programs. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Greece.

Correspondence:

Bank of Greece,

21 E Venizelos Ave,

Athens, 10250 Greece

Tel. no. +30 210 320 2370

Fax. no. +30 210 320 2432