Causal analysis of central bank holdings of corporate bonds under interference

Journal Article (Journal Article)

We investigate whether the transfer of corporate bonds from the private sector to the balance sheet of the central bank permanently alters their relative prices. Answering this question complements the literature on central bank asset purchase programs, documenting significant relative price changes over shorter horizons. We use data on bonds issued over the duration of the European Central Bank's corporate bond purchase program and a novel regression discontinuity design to quantify the causal effect of interest. The estimates indicate that the program did not, on average, permanently alter the yield spreads of eligible bonds relative to those of similar noneligible bonds. This finding suggests that central bank holdings of even relatively illiquid private sector securities can have no distortionary effects on the relative prices of such assets.

Full Text

Duke Authors

Cited Authors

  • Mäkinen, T; Li, F; Mercatanti, A; Silvestrini, A

Published Date

  • August 1, 2022

Published In

Volume / Issue

  • 113 /

International Standard Serial Number (ISSN)

  • 0264-9993

Digital Object Identifier (DOI)

  • 10.1016/j.econmod.2022.105873

Citation Source

  • Scopus