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Examining Qes Bang for the Buck: Does Quantitative Easing Reduce Credit and Liquidity Risks and Stimulate Real Economic Activity?

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Author
Lior Cohen
Category
Financial
Date Posted
2022/06/13
Date Retrieved
2022/09/26
Date Revised
Date Written
2022/06/04
Description
This paper investigates the ECB’s Corporate Sector Purchase Programme’s (CSPP) impact on European corporate bonds’ credit and liquidity risks and real economic activity. The results show that the CSPP’s announcement (“stock effect”) lowered the credit spread of eligible corporate bonds measured by the G-spread by ten basis points (bps) or 9.8%. The liquidity of eligible bonds also improved as their scaled bid-ask spread decreased by 2.6 bps or 4.6%. Moreover for every 1 billion euros of ECB corporate bond monthly purchases (“flow effect”) the scaled bid-ask spread of eligible bonds declined by 0.6 bp from June 2016 to December 2018. As for economic activity QE’s stock effect raised corporate debt – mainly for German firms – and the stock and flow effects stimulated dividend spending especially for German and French firms. These results indicate that QE initially improved corporate bond operations and encouraged borrowing. Moreover the CSPP continued to boost the liquidity of corporate
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JEL Classifications
E52E58E22G12G01
Keywords
quantitative easing (QE)corporate bonds CSPP corporate credit risk liquidity risk
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Pages
39
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708
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230204
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