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COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()

This paper studies how the announcement of the ECB’s monetary policies stopped the spread of the COVID-19 pandemic to the European sovereign debt market. We show that up to March 9, the occurrence of new cases in euro area countries had a sizeable and persistent effect on 10-year sovereign bond spre...

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Autores principales: Ortmans, Aymeric, Tripier, Fabien
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Elsevier B.V. 2021
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9750059/
https://www.ncbi.nlm.nih.gov/pubmed/36536819
http://dx.doi.org/10.1016/j.euroecorev.2021.103809
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author Ortmans, Aymeric
Tripier, Fabien
author_facet Ortmans, Aymeric
Tripier, Fabien
author_sort Ortmans, Aymeric
collection PubMed
description This paper studies how the announcement of the ECB’s monetary policies stopped the spread of the COVID-19 pandemic to the European sovereign debt market. We show that up to March 9, the occurrence of new cases in euro area countries had a sizeable and persistent effect on 10-year sovereign bond spreads relative to Germany: 10 new confirmed cases per million people were accompanied by an immediate spread increase of 0.03 percentage points (ppt) that lasted [Formula: see text] days, for a total increase of 0.35 ppt. For periods afterwards, the effect falls to near zero and is not significant. We interpret this change as an indicator of the success of the ECB’s March 12 press conference, despite the “we are not here to close spreads” controversy. Our results hold for the stock market, providing further evidence of the effectiveness of the ECB’s March 12 announcements in stopping the financial turmoil. A counterfactual analysis shows that without the shift in the sensitivity of sovereign bond markets to COVID-19, spreads would have surged to 4.2% in France, 12.5% in Spain, and 19.5% in Italy by March 18, when the ECB’s Pandemic Emergency Purchase Programme was finally announced.
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spelling pubmed-97500592022-12-15 COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?() Ortmans, Aymeric Tripier, Fabien Eur Econ Rev Article This paper studies how the announcement of the ECB’s monetary policies stopped the spread of the COVID-19 pandemic to the European sovereign debt market. We show that up to March 9, the occurrence of new cases in euro area countries had a sizeable and persistent effect on 10-year sovereign bond spreads relative to Germany: 10 new confirmed cases per million people were accompanied by an immediate spread increase of 0.03 percentage points (ppt) that lasted [Formula: see text] days, for a total increase of 0.35 ppt. For periods afterwards, the effect falls to near zero and is not significant. We interpret this change as an indicator of the success of the ECB’s March 12 press conference, despite the “we are not here to close spreads” controversy. Our results hold for the stock market, providing further evidence of the effectiveness of the ECB’s March 12 announcements in stopping the financial turmoil. A counterfactual analysis shows that without the shift in the sensitivity of sovereign bond markets to COVID-19, spreads would have surged to 4.2% in France, 12.5% in Spain, and 19.5% in Italy by March 18, when the ECB’s Pandemic Emergency Purchase Programme was finally announced. Elsevier B.V. 2021-08 2021-06-24 /pmc/articles/PMC9750059/ /pubmed/36536819 http://dx.doi.org/10.1016/j.euroecorev.2021.103809 Text en © 2021 Elsevier B.V. All rights reserved. Since January 2020 Elsevier has created a COVID-19 resource centre with free information in English and Mandarin on the novel coronavirus COVID-19. The COVID-19 resource centre is hosted on Elsevier Connect, the company's public news and information website. Elsevier hereby grants permission to make all its COVID-19-related research that is available on the COVID-19 resource centre - including this research content - immediately available in PubMed Central and other publicly funded repositories, such as the WHO COVID database with rights for unrestricted research re-use and analyses in any form or by any means with acknowledgement of the original source. These permissions are granted for free by Elsevier for as long as the COVID-19 resource centre remains active.
spellingShingle Article
Ortmans, Aymeric
Tripier, Fabien
COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()
title COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()
title_full COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()
title_fullStr COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()
title_full_unstemmed COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()
title_short COVID-induced sovereign risk in the euro area: When did the ECB stop the spread?()
title_sort covid-induced sovereign risk in the euro area: when did the ecb stop the spread?()
topic Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9750059/
https://www.ncbi.nlm.nih.gov/pubmed/36536819
http://dx.doi.org/10.1016/j.euroecorev.2021.103809
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