A High Frequency Assessment of the ECB Securities Markets Programme

By Eric Ghysels, J. Idier, Simone Manganelli, Olivier Vergote. Social Science Research Network, 2017

188 citations recorded by the source corpus.

Policy 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 (or weekly) 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. Each component of our new econometric model is extended with SMP purchases such that the SMP impact is measured both on yield variations and volatility, and at both daily and intradaily frequency. We find that SMP interventions do not have a significant impact on changes in yields at daily frequency, but when running the same regression with intraday data sampled at 15 minutes interval, we find the expected negative sign. Our empirical investigation reveals also that SMP purchases succeeded in reducing volatility of government bond yields of the countries under the programme. These results are in line with the programme objective of addressing market malfunctioning. Finally, the new econometric model we introduce is of general interest.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/840d4637c8d4ff298f67445a86e6660016ebaf83

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Citations in the corpus

Mending the broken link: Heterogeneous bank lending rates and monetary policy pass-through (2020, methodology): “This two-step approach is appealing because it captures the instantaneous effects of non-standard measures on financial markets, effects which are likely to be washed out when monthly data are used (see e.g. Altavilla et al. 2016; Bluwstein and Canova, 2016; Ghysels et al., 2015).”
Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison (2014, background): “But this is still 2Some researchers examine the effects of central bank purchases of specific securities as opposed to announcements, for example Ghysels et al. (2012) for the ECB Securities Market Program, D’Amico and King (2013) for the US, or Meaning and Zhu (2011) for the US and UK.”