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Causal analysis of central bank holdings of corporate bonds under interference

Publication ,  Journal Article
Mäkinen, T; Li, F; Mercatanti, A; Silvestrini, A
Published in: Economic Modelling
August 1, 2022

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.

Duke Scholars

Published In

Economic Modelling

DOI

ISSN

0264-9993

Publication Date

August 1, 2022

Volume

113

Related Subject Headings

  • Economics
  • 3802 Econometrics
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1403 Econometrics
  • 1402 Applied Economics
 

Citation

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Mäkinen, T., Li, F., Mercatanti, A., & Silvestrini, A. (2022). Causal analysis of central bank holdings of corporate bonds under interference. Economic Modelling, 113. https://doi.org/10.1016/j.econmod.2022.105873
Mäkinen, T., F. Li, A. Mercatanti, and A. Silvestrini. “Causal analysis of central bank holdings of corporate bonds under interference.” Economic Modelling 113 (August 1, 2022). https://doi.org/10.1016/j.econmod.2022.105873.
Mäkinen T, Li F, Mercatanti A, Silvestrini A. Causal analysis of central bank holdings of corporate bonds under interference. Economic Modelling. 2022 Aug 1;113.
Mäkinen, T., et al. “Causal analysis of central bank holdings of corporate bonds under interference.” Economic Modelling, vol. 113, Aug. 2022. Scopus, doi:10.1016/j.econmod.2022.105873.
Mäkinen T, Li F, Mercatanti A, Silvestrini A. Causal analysis of central bank holdings of corporate bonds under interference. Economic Modelling. 2022 Aug 1;113.
Journal cover image

Published In

Economic Modelling

DOI

ISSN

0264-9993

Publication Date

August 1, 2022

Volume

113

Related Subject Headings

  • Economics
  • 3802 Econometrics
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1403 Econometrics
  • 1402 Applied Economics