Abstract
The credit risk of the sovereign affects the financial health of its banking sector and vice versa, creating an adverse feedback loop known as We show that Quantitative Easing can effectively mitigate the sovereign-bank nexus. Our results indicate that the ECB's Public Sector Purchase Programme reduced the co-movement of sovereign and bank credit risk by almost 80%. The mitigation is driven by the euro area periphery and works through three channels: (i) a reduction in government bond holdings of banks, (ii) an increase of government bond prices, and (iii) an increase inexcess liquidity holdings of banks.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.