1. The Liquidity Effects of Official Bond Market Intervention
- Author:
- Michiel De Pooter, Robert F Martin, and Seth Pruitt
- Publication Date:
- 07-2015
- Content Type:
- Commentary and Analysis
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- To "ensure depth and liquidity," the European Central Bank in 2010 and 2011 repeatedly intervened in sovereign debt markets through its Securities Markets Programme. These purchases provide a unique natural experiment for testing the effects of large-scale asset purchases on risk premia arising from liquidity concerns. To explore how official intervention influences liquidity premia, we develop a search-based asset-pricing model. Consistent with our model's predictions, we find statistically and economically significant stock and flow effects on sovereign bonds' liquidity premia in response to official purchases.
- Topic:
- Markets, Bonds, Banking, and Liquidity
- Political Geography:
- Europe