Abstract

QUANTITATIVE EASING AND SOVEREIGN BOND YIELDS: A GLOBAL PERSPECTIVE

 

Dimitris Malliaropulos

Bank of Greece and University of Piraeus

 

Petros Migiakis

Bank of Greece

 

Abstract

We document the existence of a global monetary policy factor in sovereign bond yields in a panel of 45 countries, consisting of both developed and emerging economies. This global factor is related to the size of the aggregate balance sheet of the four major central banks (Fed, ECB, Bank of Japan and Bank of England). Our estimates suggest that large-scale asset purchases and liquidity provision of major central banks following the Global Financial Crisis have contributed to a significant and permanent decline in long-term yields globally, ranging from 250 basis points for AAA rated sovereigns to 330 basis points for B rated sovereigns. Fiscally weaker Eurozone countries benefited most from Quantitative Easing, with their sovereign yields declining by 600-750 basis points, depending on the rating of their sovereigns. Our findings have important policy implications: normalizing monetary policy by scaling down the expanded balance sheets of major central banks to pre-crisis levels may lead to sharp increases in sovereign bond yields globally with severe consequences for financial stability, vulnerable sovereigns and the global economy.

Keywords: monetary policy; quantitative easing; sovereign bonds; interest rates; panel cointegration.

JEL classifications: E42; E43; G12; G15

Acknowledgements: We thank Hiona Balfousia, Kostas Mavromatis, Ricardo Reis and Dimitri Vayanos for helpful comments. The views expressed in this paper are those of the authors and not necessarily those of the Bank of Greece or the Eurosystem.

 

Correspondence:

Petros Migiakis

Bank of Greece

21 El. Venizelou avenue,

10250 Athens, Greece

tel: +302103203587

email: pmigiakis@bankofgreece.gr

Documents


This website uses cookies for the optimization of your user experience. Learn More
I Accept