Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154297
Authors: 
Altavilla, Carlo
Carboni, Giacomo
Motto, Roberto
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1864
Abstract: 
We evaluate the effects on asset prices of the ECB asset purchase programme (APP) announced in January 2015 and assess its main transmission channels. We do so by first extending a term structure model with bond supply effects to account for assets with different types of risk premia. We then derive model-based predictions for cross-asset price movements associated with the transmission channels identified in the model. We finally validate empirically these predictions by means of an event- study methodology, reaching the following conclusions: The impact of the APP on asset prices is sizeable albeit the programme was announced at a time of low financial distress. This may appear puzzling in light of existing literature that finds a large impact of asset purchases only in periods of high financial distress. Consistent with the model, we explain this apparent puzzle by showing how the low financial distress, while indeed weakening certain transmission channels, has reinforced other channels because of its interplay with the asset composition of the programme. Targeting assets at long maturity and spanning the investment-grade space have supported the duration and the credit channels. At the same time, the low degree of financial stress prevailing at announcement of the programme, while weakening the local supply channel, has facilitated spill-overs to non-targeted assets.
Subjects: 
APP
Event study
LSAP
Quantitative Easing
Yield curve
JEL: 
E43
E44
E52
E58
E65
G14
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-1677-6
Document Type: 
Working Paper

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