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