Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265835 
Year of Publication: 
2022
Citation: 
[Journal:] DIW Weekly Report [ISSN:] 2568-7697 [Volume:] 12 [Issue:] 40 [Publisher:] Deutsches Institut für Wirtschaftsforschung (DIW) [Place:] Berlin [Year:] 2022 [Pages:] 249-256
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
Since the beginning of 2022, monetary policy in the euro area has been gradually normalizing. As a result, bond yields of highly indebted countries such as Italy and Greece are rising more sharply than those of countries with less debt, such as Germany, a development referred to as bond market fragmentation. To ensure the coherent effectiveness of monetary policy on economic developments and, ultimately, price developments in all euro area Member States, the Governing Council of the European Central Bank announced the Transmission Protection Instrument (TPI) in July 2022. The TPI intends to make it possible to selectively purchase government bonds from countries whose interest rate increases are not considered to be justified by macroeconomic fundamentals, thus preventing a disorderly divergence in interest rate levels between countries. This Weekly Report analyzes the economic and legal aspects of this new monetary policy instrument. Estimates from the empirical model show that current yield spreads between government bonds of euro area member states cannot yet be justified as disorderly; rising yields can be explained by a worsening of macroeconomic fundamentals and stricter general risk assessments. Therefore, the requirements for activating the TPI have not yet been fulfilled. In addition, TPI raises concerns from a legal perspective.
Subjects: 
monetary policy transmission
asset purchase programmes
sovereign bond yield spreads
bond market fragmentation
Transmission Protection Instrument
bond market fragmentation
JEL: 
E42
E43
E52
E58
K20
Persistent Identifier of the first edition: 
Document Type: 
Article

Files in This Item:
File
Size
755.35 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.