The impact of QE on sovereign risk (SUERF, 2022)

Press/Media: Other

Description

Suerf policy brief

Period5 May 2022

Media contributions

1

Media contributions

  • TitleThe impact of QE on sovereign risk
    Media name/outletSuerf
    Country/TerritoryNetherlands
    Date5/05/22
    DescriptionTo support monetary transmission, the ECB has used asset purchases as market stabilization instrument. This has underpinned the low-risk status of EMU sovereign debt. Panel regression outcomes show that this market stabilization effect of QE lowered the effect of volatility on sovereign bond spreads in crisis-prone EMU countries significantly. We postulate that QE has features of a put option written by the ECB to protect bond holders against some tail risks. Simulations with a contingent claims model (CCM) show that this implicit put option is valuable to investors in sovereign bonds.
    URLhttps://www.suerf.org/publications/suerf-policy-notes-and-briefs/the-impact-of-qe-on-sovereign-risk/
    PersonsJan Willem van den End, Leo de Haan, Dirk Broeders