Working Papers
Price pressure during central bank asset purchases: Evidence from covered bonds
SSRN Online Appendix
This article examines the impact of the European Central Bank’s (ECB) third covered bond purchase program (CBPP3) on yields, issuance, and portfolio positions. Using a matched difference-in-difference design, I find that CBPP3 reduced yields and facilitated issuance, but the effects varied systematically with investor composition. Covered bonds with a high ex-ante share of euro area bank investors experienced the strongest yield declines and issuance increases, while formal eligibility alone was a weak predictor. These results suggest that banks act as relatively inelastic clientele investors: they tend to hold eligible bonds for liquidity and regulatory purposes, while reallocating into ineligible bonds when central bank purchases reduce available supply. Overall, the findings indicate that the effectiveness of QE in the covered bond market is best understood through the structure of the investor base rather than the eligibility threshold itself.
Presentations: DGF (Hagen, 2025), Nova/WU workshop (Lisbon, 2025), AWG (Vienna, 2024), EFA (Barcelona, 2022), SFI Job Market Workshop (Online, 2020)
Collateral Haircuts and Bank Funding: Evidence from Sovereign Downgrades
SSRN
This paper studies how the European Central Bank’s (ECB) ratings-based collateral framework affects banks’ financing choices and bond pricing. The ECB applies discrete valuation haircuts based on the highest available credit rating, with a sharp threshold at A-. Using data on euro-denominated bank bonds issued between 1999 and 2020, I show that Moody’s downgrades of sovereigns below A- reduce unsecured bond issuance and increase secured bond issuance, as secured bonds benefit from rating notch-ups that avoid large haircut increases. Sovereign downgrades widen the credit spread wedge between secured and unsecured bonds and induce strategic use of alternative rating agencies. The findings imply that the collateral framework reallocates capital toward issuers able to achieve rating notch-ups while increasing balance sheet encumbrance and systemic fragility. Aligning haircut thresholds in the bank bond market with regulatory capital requirements could reduce distortions in funding choices and improve financial stability.
Presentations: AWG (Innsbruck, 2025)
Work in progress
Corporate bond returns on ECB announcement days
Publications
The term structure of interest rates in a New Keynesian Policy model, (with Daniel Buncic), Journal of Macroeconomics, 50, 126-150, 2016.
We jointly estimate a New Keynesian policy model with a Gaussian affine no-arbitrage specification of the term structure of interest rates, and assess how important inflation, output and monetary policy shocks are as sources of fluctuations in interest rates and the term premium. We work with observable pricing factors and utilize the computationally convenient normalization of Joslin et al. (2013b). This allows us to estimate the model without needing to restrict the parameters driving the market prices of risk. Using data for the U.S. from 1962:Q1 to 2014:Q2, we find that inflation and the output gap account for around 80% of the unconditional forecast error variance of bond yields at the short and medium end of the term structure, while monetary policy shocks account for around 20%. Bond yields respond to macroeconomic shocks only gradually, peaking after about 4 quarters. This is due to sizable monetary policy inertia estimates in our model. At the peak of the response, inflation shocks increase bond yields by more than one-to-one, and output shocks by less than one-to-one, which is consistent with a Taylor type monetary policy rule. Our term premium estimate is strongly counter-cyclical and can capture salient features of the term structure that constitute a puzzle in the expectations hypothesis.