Spillover effects of unconventional monetary policy on international bond markets
KeywordsUnconventional monetray policy ; Spillover ; Emerging Market Economies (EMEs) ; Bond market ; Global economy
This thesis examines the unconventional monetary policies that have been implemented during the last two decades and focuses on their potential spillover effects on bond yields. It describes what unconventional monetary policy is, as well as why Central Banks resorted to it. The definitions of the most popular tools of UMP are provided, as well as a timeline record of how UMP has been implemented by the FED in the US and the ECB in the euro area. Additionally, we focus on spillovers of UMP on emerging market economies (EMEs), but also on the so-called “spill-backs” from EMEs to advanced economies. In the empirical study, we examine bond yields of 12 European countries during a period of 95 months and how these are affected through the various transmission channels of UMP. The results show that all three channels (PB, signaling, liquidity) are effective, with the signaling channel being the most effective. We find that the ECB has indeed managed to maintain the crisis and point out the risk for countries with high idiosyncratic risk, in case the asset purchase program stops.