Eurozone bond market dynamics, ECB monetary policy and financial stress
Abstract
We investigate the role of both ECB’s asset purchases and market sentiment in the Eurozone sovereign debt crisis
context. We explain the evolution of long-term interest rates in the Eurozone and in some Member States since the
ECB started to purchase various securities for monetary policy purposes. We control for four categories of
fundamentals: macroeconomic, international, financial and expectations. We show that unconventional monetary
policies and country-specific market sentiment have significant negative and positive effects respectively. Our results
suggest that ECB’s unconventional policies have been effective in mitigating the disruption in the channels of
transmission across the different Eurozone countries.
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