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The role of ECB monetary policy and financial stress on Eurozone sovereign yields


We investigate the role of both ECB’s asset purchases and financial stress during the Eurozone sovereign debt crisis. We explain the evolution of long-term interest rates for the euro area as a whole and for some Member States since the ECB started to purchase securities for monetary policy purposes. We address the potential endogeneity between unconventional monetary policies and financial stress, and control for four categories of fundamentals: macroeconomic, international, financial and expectations. We find that expansionary unconventional monetary shocks have reduced the level of sovereign yields, whereas exogenous shocks to financial stress have had no effect. This result is robust to an ARCH representation, to a longer sample and to a panel estimation. In addition, we show that country-specific financial stress has had a positive impact on the change in sovereign yields, while unconventional monetary shocks have had a negative effect. Our results suggest that ECB’s unconventional policies have been effective in mitigating sovereign risks across the different Eurozone countries.

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Fig. 1

Source: ECB Statistical Data Warehouse

Fig. 2

Source: ECB Statistical Data Warehouse

Fig. 3

Source: Authors’ estimations


  1. See Arghyrou and Kontonikas (2012) and De Santis (2012).

  2. Borio and Zabai (2016) provide a comprehensive list of contributions. Early evidence for the US and the UK comes from Joyce et al. (2011), Wright (2012) and Christensen and Rudebusch (2012).

  3. See Cour-Thimann and Winkler (2012) and Durré et al. (2014).

  4. The APP includes all purchase programmes implemented since September 2014. It started with the 3rd covered bond purchase programme (CBPP3) and the ABSPP (Asset-backed securities purchase programme) and was followed by PSPP (Public sector purchase programme) and CSPP (Corporate sector purchase programme).

  5. See also De Grauwe and Ji (2013, 2014, 2015) and Favero and Missale (2012).

  6. See Creel et al. (2016) and Kinateder and Wagner (2017) for analyses on sovereign markets. Salachas et al. (2017) focus on bank lending rates. De Santis (2016) even suggests that the APP was expected by financial markets such that its effect predates its announcement and implementation.

  7. Greek, Portuguese and Irish bonds were initially concerned from May 2010 until the beginning of 2011 during the first stage of the SMP. The programme was then relaunched in August 2011 and primarily involved Irish, Portuguese, Italian and Spanish bonds. See Figure 1 in Eser and Schwaab (2016).

  8. See Bernoth and Erdogan (2012), De Grauwe and Ji (2014) and Favero and Missale (2012).

  9. See Afonso et al. (2014) for instance.

  10. A full description of the programmes is available from the ECB website. See:

  11. See Blot et al. (2016) for instance.

  12. Figure 3 in “Appendix” only shows residuals of Eqs. (2) and (3) estimated for the ciss of the euro area. The other residuals are not plotted here but are available from the authors upon request.

  13. This correction also enables to circumvent the “generated regressor” bias that our explanatory variables of interest (innovations to asset purchases and CISS) might introduce in the estimation of standard errors.

  14. Holdings of sovereign securities are even higher if we account for securities purchased in the context of the SMP which amounted to € 98 billion in June 2017.

  15. See Christensen and Rudebusch (2012), Wright (2012) or Rogers et al. (2014) for evidence on the US and UK.

  16. There is no significant impact of the SMP for France, which is not surprising as French sovereign bonds were not concerned by this programme.

  17. They use confidential data from the ECB on the breakdown amount of sovereign bonds for countries that were concerned by the programme (Greece, Portugal, Ireland, Spain and Italy).

  18. De Grauwe and Ji (2012, 2013, 2014, 2015) find contrasting results for this variable. The negative link between the real effective exchange rate and the long-term interest rate may stem from capital inflows which would appreciate the currency and, meanwhile, would ease long-term interest rates.


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Correspondence to Jérôme Creel.

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The paper initially circulated under the title: “Eurozone bond market dynamics, ECB monetary policy and financial stress”. We thank two anonymous referees for helpful comments. The usual disclaimer applies.



See Tables 2, 3, 4, 5, 6, 7 and 8.

Table 2 Data description
Table 3 Summary statistics
Table 4 An ARCH representation of long-term interest rates
Table 5 Controlling liquidity beyond VIX
Table 6 Longer sample
Table 7 Panel estimation
Table 8 Differences

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Blot, C., Creel, J., Hubert, P. et al. The role of ECB monetary policy and financial stress on Eurozone sovereign yields. Empir Econ 59, 1189–1211 (2020).

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  • Asset purchase programmes
  • ECB
  • Sovereign yields
  • Monetary policy
  • CISS
  • European sovereign debt crisis

JEL Classification

  • E52
  • E58