A High-Frequency assessment of the ECB Securities Markets Programme

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractPolicy impact studies often suffer from endogeneity problems. Consider the case of the ECB Securities Markets Programme: If Eurosystem interventions were triggered by sudden and strong price deteriorations, looking at daily price changes may bias downwards the correlation between yields and the amounts of bonds purchased. Simple regression of daily changes in yields on quantities often give insignificant or even positive coefficients and therefore suggest that SMP interventions have been ineffective, or worse counterproductive. We use high frequency data on purchases of the ECB Securities Markets Programme and sovereign bond quotes to address the endogeneity issues. We propose an econometric model that considers, simultaneously, first and second conditional moments of market price returns at daily and intradaily frequency. We find that SMP interventions succeeded in reducing yields and volatility of government bond segments of the countries under the programme. Finally, the new econometric model is broadly applicable to market intervention studies. JEL Codes: E52 E44 G12 C58Keywords: Unconventional monetary policy; Euro area crisis; SMP; Component models; High frequency data.1 Non-Technical SummaryIn May 2010, the Eurosystem launched the Securities Markets Programme (SMP) to address the malfunctioning of several securities markets, which appeared to threaten the way the policy rates set by the Eurosystem are transmitted to market interest rates of longer maturity and in other market segments, to the real economy and prices. Furthermore, the ECB wanted "to ensure depth and liquidity in those market segments which are dysfunctional. The objective of this programme [was] to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism". In practice, the Eurosystem started to intervene in the secondary markets of Greek, Irish and Portuguese government bond markets, and from August 2011 extended this to Italian and Spanish government bond markets. This paper assesses the impact of SMP purchases on the price dynamics in the government bond markets of the above sovereigns, and more specifically the impact on the yield changes and their volatility. Given the objective of the programme to address malfunctioning of securities markets, a proper assessment of these aspects is important. The paper hereby looks beyond the programmes impact at announcement which had bee...

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