Quantitative easing and government bonds: evidence from the EU

Abstract

This paper examines the relationship of quantitative easing policy programs, government bond yields and banking stock price returns for the EU periphery. The aim is to estimate and to analyse the effect of the ECB's QE policy on government bond yields and banking stock prices. The dataset consist of monthly panel data observations spanning from January 2008 until September 2017. The empirical part utilises the difference-in-differences methodology. The findings suggest that the implementation of QE has positive effects, by decreasing the bond yields for the periphery countries that participated in the program; there were no effects noted for banking returns. Additional macroeconomic variables are included, where a reduction in government debt and unemployment and a raise in industrial production, tax revenues and FDI lead to lower government bond yields and to higher banking returns. The research provides to investors and government regulators empirical insights into the effects that QE policies have.