The effects of the ECB's public and corporate bond purchases. An event study examining the German financial market in comparison to the G7-group

Table of Contents

1. Introduction

2. Literature review & background

2.1 Channels through which QE influences prices

2.2 Study layouts used in previous work

2.3 Findings of previous research

2.4 Spill-over effect on other assets

2.5 Positioning of this dissertation within the existing work

2.6 Quantitative Easing of the European Central Bank

3. Methodology

4. Data

5. Results

5.1 Government bonds

5.2 Corporate bonds

5.3 Currencies

5.4 Equity markets

6. Conclusion

Objectives & Core Topics

The primary objective of this dissertation is to quantify the impact of the European Central Bank's (ECB) public and corporate bond purchase programs on various financial markets, specifically focusing on the German market while using the G7 countries as a comparative benchmark.

• Analysis of the financial market impact of Quantitative Easing (QE) announcements.
• Evaluation of asset price reactions in government bonds, corporate bonds, currencies, and equity markets.
• Comparison of the Public Sector Purchase Program (PSPP) versus the Corporate Sector Purchase Program (CSPP).
• Examination of the "event study" methodology for measuring financial market efficiency.
• Investigation into transmission channels like liquidity, signaling, and portfolio balance effects.

Excerpt from the Book

Summary of Chapters

Introduction: Outlines the necessity of unconventional monetary policy and the research gap concerning the ECB's specific QE programs.

Literature review & background: Provides a theoretical overview of QE objectives and the transmission channels through which central bank interventions affect asset prices.

Methodology: Explains the event study framework used to analyze the eleven identified ECB announcements and the assumptions regarding market efficiency.

Data: Details the dataset, focusing on the German investor perspective and the use of Bloomberg indices for bonds and equity market proxies.

Results: Presents empirical findings on the reaction of government bonds, corporate bonds, currencies, and equities to the APP announcements.

Conclusion: Summarizes the key findings, confirming the significant impact of QE on asset yields and highlighting structural differences between PSPP and CSPP.

Keywords

Quantitative Easing, ECB, Asset Purchase Program, PSPP, CSPP, Event Study, Bond Yields, Signaling Effect, Liquidity Effect, Portfolio Balance, Financial Markets, German Market, G7, Monetary Policy, Market Efficiency

Frequently Asked Questions

What is the primary focus of this dissertation?

The study focuses on quantifying the financial market impact of the ECB's public and corporate bond purchase programs from January 2015 to June 2016.

Which central bank programs are analyzed?

The research examines the Public Sector Purchase Program (PSPP) and the Corporate Sector Purchase Program (CSPP) under the umbrella of the Asset Purchase Program (APP).

What is the core research question?

The study investigates how ECB asset purchase announcements influence asset price movements, specifically looking at bond yields, currencies, and equity markets.

Which methodology is employed to analyze the effects?

An event study approach is used, which measures market responses to major news releases by comparing them to control groups, including G7 economies.

What are the main asset classes covered in the main section?

The analysis covers government bonds, corporate bonds, currencies, and various national equity indices.

What are the characterizing keywords of the research?

Key terms include Quantitative Easing, Asset Purchase Program, Signaling Effect, Liquidity Effect, and Portfolio Balance.

How did the bond markets react to the ECB announcements?

The results show that bond yields generally fell in response to the purchases, with corporate bonds showing even more sensitivity than government bonds.

Is there a difference in impact between the PSPP and the CSPP?

Yes, the study identifies a structural break, noting that early announcements (PSPP) often had a higher impact compared to the later corporate-focused programs.