The Asset Purchase Programme in Europe: Financial market impact and European bond market fragmentation

Since March 2015, the ECB adopted unconventional policy measures aiming to increase inflation at its target level. There is much discussion on the effectiveness of the Asset Purchase Program of the ECB, since real outcomes are hard to observe. This paper analyzes the effect of the unconventional policy measures of the ECB on the European bond market, using a time series panel data regression comprising observation for 10 EMU countries participating in the Private Sector Purchase Program for the period of January 2014 till March 2018. Furthermore, 4 countries are added as a control group to make the outcomes more robust. As many papers focus on the announcement effect and show a temporary relation between QE and bond yields, this paper shows that the PSPP program is able to lower bond yields on a permanent level. During the PSPP, purchases were not equally divided across European countries due to imposed regulations of the ECB, causing discussion across participating countries. This paper illustrates that the unfair monthly division of monthly purchases did not contribute to a divergence of the intra-European bond market.