Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2017-09-05
Number: 17-080/IV
Author-Name: Martijn (M.I.) Droes
Author-Email: m.i.droes@uv.nl
Author-Workplace-Name: University of Amsterdam & Amsterdam School of Real Estate; Tinbergen Institute, The Netherlands
Author-Name: Ryan van Lamoen
Author-Email: R.C.R.Lamoen@dnb.nl
Author-Workplace-Name: Dutch Central Bank
Author-Name: Simona Mattheussens
Author-Email: s.e.ciolca@dnb.nl
Author-Workplace-Name: Dutch Central Bank
Title: Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Assets Purchase Program
Abstract: This paper examines whether the ECB's Quantitative Easing (QE) policy is causing government bond prices to deviate from their fundamental value. We use a recent advance in the methodology to measure exuberant price behavior in financial time series introduced by Phillips et al. (2015). We extend this methodology and apply it to government bond prices. The results show that the QE policy substantially inflated government bond prices in Euro Area countries to such an extent that bond prices are no longer in line with the underlying fundamental value. We argue that careful monitoring is required when the QE policy is eventually reversed. The test procedure outlined in this paper provides a monitoring tool to do so.
Classification-JEL: G12; G15; E52
Keywords: government bond yields, asset price bubbles, monetary policy
File-Url: https://papers.tinbergen.nl/17080.pdf
File-Format: application/pdf
File-Size: 726537 bytes
Handle: RePEc:tin:wpaper:20170080