Soft budget constraints, European Central Banking and the financial crisis

Arbeitspapier

During the European financial crisis, the European Central Bank implemented a series of unconventional monetary policy measures. We argue that these unconventional monetary policy measures created soft budget constraints for the Eurozone countries by lowering their bond yield spreads. This hypothesis is tested using pooled OLS estimations and two different datasets: monetary policy event dummies and the purchase volumes of the Securities Markets Programme (SMP). We find significantly negative effects on bond yield spreads for both datasets, leading us to accept the hypothesis. The results are confirmed by robustness checks that directly estimate the effect of unconventional monetary policy on central government debt.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeiträge ; No. 2016/7

Classification and Topics

• Classification: Wirtschaft ; International Lending and Debt Problems ; International Finance Forecasting and Simulation: Models and Applications ; International Policy Coordination and Transmission ; Capitalist Systems: Performance and Prospects ; Comparative Analysis of Economic Systems
• Subject: soft budget constraints ; bond yield spreads ; monetary policy events ; securities markets programme ; European Central Bank

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jäger, Jannik ; Grigoriadis, Theocharis
• Event: Veröffentlichung
• (who): Freie Universität Berlin, Fachbereich Wirtschaftswissenschaft
• (where): Berlin
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/130763
• Last update: 10.03.2025, 11:46 AM CET