The response of Euro-area sovereign spreads to the ECB unconventional monetary policies
Seminar of Leonardo Iania (UCL),
On Wednesday, November 23, 2016 at 11AM (1701-N1)
We analyse variations in sovereign bond yields and spreads follow- ing unconventional monetary policy announcements by the European Central Bank. Using a two-country, arbitrage-free, shadow-rate dy- namic term structure model (SR-DTSM), we decompose countries' yields into expectation and risk premium components. By means of an event study analysis, we show that the ECB's announcements re- duced both the average expected instantaneous spread and risk repric- ing components of Italian and Spanish spreads. For countries such as Belgium and France, the ECB announcements impacted primarily the risk repricing component of the spread.