We analyse variations in sovereign bond yields and spreads following unconventional monetary policy announcements by the European Central Bank. Using a two-country, arbitrage-free, shadow-rate dynamic term structure model (SR-DTSM), we decompose countries’ yields into expectation and risk premium components. By means of an event study analysis, we show that the ECB’s announcements reduced both the average expected instantaneous spread and risk repricing components of Italian and Spanish spreads. For countries such as Belgium and France, the ECB announcements impacted primarily the risk repricing component of the spread.

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Keywords Term Structure of Interest Rates, Lower Bound, Nonlinear State-Space Model, Monetary Policy Expectations, Unconventional Monetary Policy
JEL Time-Series Models; Dynamic Quantile Regressions (jel C32), Determination of Interest Rates; Term Structure of Interest Rates (jel E43), Monetary Policy (Targets, Instruments, and Effects) (jel E52)
Persistent URL hdl.handle.net/1765/105370
Dewachter, H.D.R, Iania, L, & Wijnandts, J. (2017). The Response of Euro Area Sovereign Spreads to the ECB Unconventional Monetary Policies. Retrieved from http://hdl.handle.net/1765/105370