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Central bank asset purchases and auction cycles revisited: new evidence from the euro area

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Friday, April 19, 2024

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Working Paper Series

Key Points:

Working Paper Series
Federico Maria Ferrara
Central bank asset purchases
and auction cycles revisited:
new evidence from the euro area

No 2927

Disclaimer: This paper should not be reported as representing the views of the European Central Bank
(ECB).
Abstract
This study provides new evidence on the relationship between unconventional monetary
policy and auction cycles in the euro area.
The findings indicate that Eurosystem?s asset purchase flows mitigate
yield cycles during auction periods and counteract the amplification impact of market volatility.
The dampening effect of central bank asset purchases on auction cycles is more sizeable and
precisely estimated for purchases of securities with medium-term maturities and in jurisdictions
with relatively lower credit ratings.
On the other hand, central banks may influence price dynamics in these markets, most notably
through their asset purchase programmes.
If so, do central bank asset purchases
affect bond yield movements around auction dates?
Auction cycles are present when secondary market yields rise in
anticipation of a debt auction and fall thereafter, generating an inverted V-shaped pattern around auction
dates.
ECB Working Paper Series No 2927
3

1

Introduction

The impact of central bank asset purchases on government bond markets is a focal point of economic and
financial research.
If so,
do central bank asset purchases shape yield sensitivity around auction dates?
The paper provides new evidence on the effects of Eurosystem?s asset purchases on secondary market
yields around public debt auction dates.
The analysis builds on previous research based on aggregate data
on central bank asset purchases and a shorter analysis period (van Spronsen and Beetsma 2022).
Using
granular data on Eurosystem?s asset purchases offers an opportunity to shed light on the mechanisms linking
unconventional monetary policy and auction cycles.
Given this legal constraint, the study
hypothesises that the effect of asset purchases on 10-year auction cycles is mostly indirect, and goes via price
spillovers generated by purchases of securities outside the 10-year maturity space.
Taken together, these results provide new evidence about auction cycles in Europe and contribute to a
larger literature on the flow effects of central bank asset purchases on bond markets.
Section 4 offers descriptive evidence about auction cycles in the euro area.
Auction cycles are defined by the presence of an inverted V-shaped pattern in secondary market yields
around primary auctions.
That is, government bond yields rise in the run-up to the date of the auction and
fall back to their original level after the auction.
Their limited risk-bearing capacities and inventory management operations are
seen as key mechanisms driving auction cycles (Beetsma et al.
ECB Working Paper Series No 2927
7

Second, central bank asset purchases can alleviate the cycle by (partly) absorbing the additional supply
of substitutable instruments in the secondary market (van Spronsen and Beetsma 2022).
This expectation is
supported by several analyses on the price effects of central bank bond purchases (D?Amico and King 2013;
Arrata and Nguyen 2017; De Santis and Holm-Hadulla 2020).
Empirically, previous research has provided evidence of auction cycles taking place across different jurisdictions.
(2016) detect auction cycles for government debt in Italy, but not in Germany, during the European
sovereign debt crisis.
Research on the impact of central bank asset purchases on yield cycles around auctions is still limited.
Their paper provides evidence
that Eurosystem?s asset purchases reduce the presence of auction cycles for euro area government debt.
Nonetheless, several questions remain open about auction cycles and unconventional monetary policy
in the euro area.
Therefore, they
provide only a partial picture of auction cycles and central bank asset purchases in Europe.
The use of granular data on central bank asset purchases is especially important in light of the modalities
of monetary policy implementation of the Eurosystem.
Altogether, these elements motivate further investigation of the relationship between central bank asset
purchases and auction cycles in the euro area.
Taken together, these results confirm that Eurosystem?s asset purchases mitigate yield cycles during auction periods and counteract the amplification impact of market volatility.
The findings confirm that the flow
effects of central bank purchases on yield movements around auction dates are driven by lower-rated countries.
Additional analyses provide evidence for an indirect effect of purchases on auction cycles and highlight
the presence of substantial heterogeneity across jurisdictions and purchase programmes.
Flow Effects of Central Bank Asset Purchases on Sovereign Bond
Prices: Evidence from a Natural Experiment.
Federico Maria Ferrara
European Central Bank, Frankfurt am Main, Germany; email: [email protected]
? European Central Bank, 2024
Postal address 60640 Frankfurt am Main, Germany
Telephone
+49 69 1344 0
Website
www.ecb.europa.eu
All rights reserved.

Shocked to the core: a new model to understand euro area inflation

Retrieved on:

Tuesday, April 2, 2024

The pandemic's disruption of global supply chains and the spike in natural gas prices following Russia’s invasion of Ukraine were significant drivers of surging inflation.

Key Points:

The pandemic's disruption of global supply chains and the spike in natural gas prices following Russia’s invasion of Ukraine were significant drivers of surging inflation.
Traditional inflation models often ignore such supply-side shocks, even though they can have a significant and persistent impact on core inflation in the euro area (as measured by rates of change in the Harmonised Index of Consumer Prices excluding the energy and food components).

CrownLine Assesses Trump's VP Running Mate Short List for Compatibility & Electability

Retrieved on:

Monday, February 26, 2024

President Trump, Engineering, Jupiter Column, Algorithm, DeSantis, Psychology, Fibonacci, LOS, Chemistry, Neuroscience, Trump, TBD, Mathematics, Ramasamy, Astrology, Dwight D. Eisenhower, Number, Research, Property insurance

LOS ANGELES, Feb. 26, 2024 /PRNewswire-PRWeb/ -- CrownLine (www.crownline.io), a company focused on illuminating human relationship chemistry according to individual birthdates, has assessed Donald Trump's short list of 6 candidates for consideration as his VP running mate, and determined that South Carolina Senator Tim Scott and South Dakota Governor Kristi Noem are the best choices for Trump, with Florida Governor Ron DeSantis rated last.

Key Points:

The CrownLine assessment of Trump's VP candidate short list is made upon CrownLine founder and CEO Todd Anthony Person's reflection on, and analysis of, previous Presidential-VP running mates dating back to the Eisenhower era in the 1950s.
Leveraging the CROWNLINE Method, developed by Person, birthdate relationship chemistry compatibility patterns could be seen in Eisenhower-Nixon; Clinton-Gore; and Obama-Biden.
Below is a rationale for the remaining four individuals on Trump's short list for his VP running mate:
Ramaswamy and Trump are suited and connected 3Diamonds to 4Diamonds.
Todd Anthony Person, CrownLine Founder and CEO and founder of the CROWNLINE Method, is available to be interviewed by media, and can answer questions about the VP candidate shortlist assessment.

Back in the day, being woke meant being smart

Retrieved on:

Wednesday, February 14, 2024

Ron DeSantis had his way, the word “woke” would be banished from public use and memory.

Key Points:

Ron DeSantis had his way, the word “woke” would be banished from public use and memory.
As he promised in Iowa in December 2023 during his failed presidential campaign, “We will fight the woke in education, we will fight the woke in the corporations, we will fight the woke in the halls of Congress.
Back then, the word was used as a warning to be aware of racial injustices in general and Southern white folks in particular.

The early days of wokeness

Examples of its use – in various forms of the word “awake” – date back to before the Civil War in Freedom’s Journal, the nation’s first Black-owned newspaper.
Because education and literacy were “of the highest importance,” the editors wrote, it was “surely time that we should awake from this lethargy of years” during enslavement.
In a 1904 editorial in the Baltimore Afro-American, for instance, the editors urged Black people to “Wake up, wake up!” and demand full-citizenship rights.
Wake up Africa!” At around the same time, blues singers were using the word to hide protest messages in the language of love songs.

A miscarriage of justice

On March 25, 1931, in Chattanooga, Tennessee, two white women, Victoria Price and Ruby Bates, falsely accused a group of
several Black young men of rape.
Based on their words, the nine Black men – ages 12 to 19 years old – were immediately arrested and in less than two weeks, all were tried, convicted, and with one exception, sentenced to death.

All the cases were appealed and eventually reached the U.S. Supreme Court.
In its 1932 Powell v. Alabama decision, the court overturned the verdicts in part because prosecutors excluded potential Black jurors from serving during the trial.
But instead of freedom, the cases were retried – and each of the “Scottsboro Boys” was found guilty again.

How woke became a four-letter word

Over the years, the memory of the Scottsboro Boys has remained a part of Black consciousness and of staying woke.
Two years later, a documentary on the group was called “Stay Woke: The Black Lives Matter Movement.”

When asked to define the term in June 2023, DeSantis explained: “It’s a form of cultural Marxism.
Civic literacy requires an understanding of the social causes and consequences of human behavior – the very essence of being woke.

Ronald E. Hall does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Gas price shocks and euro area inflation

Retrieved on:

Tuesday, February 13, 2024

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We document

Key Points:

We document
how gas price fluctuations have a heterogeneous pass-through to euro area prices
depending on the underlying shock driving them.
How do gas price shocks feed through to euro area
inflation, and is the pass-through shock-dependent?
We analyse the importance of gas price shocks
for euro area inflation in two steps.
We identify three structural shocks driving European gas prices,
inspired by the literature on oil but tailored to the European gas market: (i) a gas supply
shock, which reduces the supply of natural gas to the European market, increases the
gas price and lowers gas inventories; (ii) an economic activity shock, which lifts demand
for gas due to higher economic production, and finally (iii) a shock to gas inventories,
when gas prices are driven by precautionary demand by gas companies.
First, all three identified shocks are
important drivers of gas price dynamics, but they differ in how persistently they push
ECB Working Paper Series No 2905

2

up gas prices.
The effect on euro area HICP of a shock to gas supply is more
persistent and somewhat higher than when gas prices are driven by economic activity
shocks.
A final key finding is that the pass-through of gas market shocks to euro area inflation
appears non-linear.
The unprecedented volatility of gas prices
contributed to the inflation problem in the euro area, with the gas price shocks feeding
through producer prices, wages and persistently lifting core inflation.
More expensive
energy contributed substantially to the rise in inflation in Europe during 2022.2
Figure 1: Gas price and euro area Harmonized Index of Consumer Prices.
How do gas price shocks feed through to euro area
inflation, and is the pass-through shock-dependent?
For instance, about 75% of gas imports to the euro area arrives
through pipelines, making gas imports difficult to substitute and gas markets subject to
3
See for example the evidence by Rubaszek and Uddin (2020) for the US economy.
We analyse the importance of gas price shocks for
euro area inflation in two steps.
We identify three structural shocks driving European gas prices,
inspired by the literature on oil but tailored to the European gas market: (i) a gas supply
shock, which reduces the supply of natural gas to the European market, increases the
gas price and lowers gas inventories; (ii) an economic activity shock, which lifts demand
for gas due to higher economic production, and finally (iii) a shock to gas inventories,
when gas prices are driven by precautionary demand by gas companies.
First, all three identified shocks are
important drivers of gas price dynamics, but they differ in how persistently they push
up gas prices.
But when gas prices are driven by
inventory demand shocks, the price effect typically dies out within one quarter.
A final key finding is that the pass-through of gas market shocks to euro area inflation appears non-linear.
The unprecedented volatility of gas prices
contributed to the inflation problem in the euro area, with the gas price shocks feeding
through producer prices, wages and persistently lifting core inflation.
(2022) and Alessandri and Gazzani (2023) identify gas supply shocks using VAR models,
finding that gas price shocks lead to persistent increases in headline inflation.14 Ba?bura
et al.
(2023) find positive effects of gas price shocks on core inflation in a BVAR for
the euro area that includes one type of gas shock along a longer list of macroeconomic
shocks.
3.1
Data

For the gas market BVAR model, we use gas quantities, gas prices, gas inventories and
euro area industrial production, as displayed in Figure 2.
(2015) to optimize
ECB Working Paper Series No 2905

13

the posterior distribution.16 The vector Y includes the European gas quantity proxy, gas
inventories, the European gas price benchmark and euro area industrial production.
As demand for gas increases, the gas price also rises
while inventories fall as agents use gas in storage to partially satisfy higher demand.
Shocks to gas
quantities driven by gas supply or inventory shocks tend to revert to pre-shock levels after
around five to seven months, while economic activity shocks lead to a more long-lived
increase in gas demand.19 Dynamics in gas inventories are more similar across shocks.
3.4
Historical events in the European gas market

Before analysing the transmission of the different types of gas shocks to euro area prices,
we show how the model interprets the unprecedented gas price rise in 2022 in terms of
driving factors, and compare it with previous historical episodes of heightened gas price
volatility as a way of validating the model.
Inventory shocks play a
slightly smaller role, accounting for 17% of gas quantity and 23% of gas price fluctuations
while the residual component (i.e.
4
Pass-through of gas price shocks to consumer prices

The pass-through of gas price shocks to inflation is likely to be multi-faceted.
We first consider four outcome variables y: the European gas price, euro area HICP,
core HICP and energy HICP.
Third, depending on the driving factor, gas price increases can pass through to core
inflation in the euro area.
The results underline that gas price shocks can have important implications for inflation in the euro area ? depending on the driving factor of higher gas prices.
Casoli, C., Manera, M., and Valenti, D. ?Energy shocks in the euro area: disentangling
the pass-through from oil and gas prices to inflation?.

Gina DeSantis Ceramics Launches The Palo Santo Collection, Dinnerware for Purifying Spaces With Elegance and Charm

Retrieved on:

Monday, February 12, 2024

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LAKEWOOD, Ohio, Feb. 12, 2024 /PRNewswire-PRWeb/ -- Gina DeSantis Ceramics introduces The Palo Santo Collection, available in salt and moss hues for a contemporary look that is welcoming and inviting. Each piece features soft contours and a subtle palette, handcrafted by artist Gina DeSantis on her potter's wheel using clay imported from Spain.

Key Points:

LAKEWOOD, Ohio, Feb. 12, 2024 /PRNewswire-PRWeb/ -- Gina DeSantis Ceramics introduces The Palo Santo Collection, available in salt and moss hues for a contemporary look that is welcoming and inviting.
Each piece features soft contours and a subtle palette, handcrafted by artist Gina DeSantis on her potter's wheel using clay imported from Spain.
"Palo Santo, or holy wood, embodies the essence of purity that I wanted to depict in these new pieces, a combination of cool and warm colors to remove negativity from home spaces," said DeSantis.
DeSantis is the lead creator behind her brand, Gina DeSantis Ceramics.

SANDY MODELL WONDERS IF HIS BOOK SHOWN ON THIS BILLBOARD ABOUT HIS SON MURDERED IN FLORIDA COULD IMPACT THE REPUBLICAN CAUCUSES IN NEW HAMPSHIRE?

Retrieved on:

Wednesday, January 17, 2024

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Professor Modell charges the county's prosecutor and Gov.

Key Points:

Professor Modell charges the county's prosecutor and Gov.
DeSantis with failure to bring the "cold blooded killer" to justice and has created this highway sign to greet the governor.
Shouldn't candidates for the presidency possess such qualities as integrity, reliability, and accountability, Modell asks.
The book cover beside a message to DeSantis will be highly visible on the billboard to those driving from airport to the second Republican state caucuses.

US election 2024: Trump victory in Iowa caucus not as big as he may have hoped – here's why Biden still wants him to get GOP nomination

Retrieved on:

Wednesday, January 17, 2024

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The last successful GOP candidate who won the Iowa caucus was George W Bush in 2000.

Key Points:

The last successful GOP candidate who won the Iowa caucus was George W Bush in 2000.
This is partly because Iowa, with just over 3 million inhabitants represents less than 1% of the wider US population.
Its voters are also much older, more rural, whiter (90%), more evangelical and less college educated than the US at large.
Those turning out to vote for Trump were also a smaller, self-selecting subset of even that tiny population.

Biden wants Trump to win

It was true yesterday and it’ll be true tomorrow.” This is also how Biden and his team want it.
By contrast, polls pitting Biden against either Haley or DeSantis show a marked improvement in the prospect for the Republic Party.
By contrast, the Democrats see such a process as their best chance of overcoming Biden’s own unpopularity with the electorate.

Negative ratings

Trump’s national favourability ratings currently stand at 42%.
This is a very different picture from that painted by the news coverage from the Iowa caucus.

David Hastings Dunn has previously received funding from the ESRC, the Gerda Henkel Foundation, the Open Democracy Foundation and has previously been both a NATO and a Fulbright Fellow.

DeSantis-linked super PAC broke new ground in pushing campaign finance rules in Iowa in support of a 2nd-place finish

Retrieved on:

Wednesday, January 17, 2024

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Never Back Down, the Ron DeSantis super PAC, played an outsized role in the Iowa caucuses campaign of the Florida governor.

Key Points:

Never Back Down, the Ron DeSantis super PAC, played an outsized role in the Iowa caucuses campaign of the Florida governor.
The only limits currently imposed are that super PACs can’t contribute directly to federal candidates’ campaign funds, and they can’t coordinate with campaigns.
In the 2024 Iowa caucuses campaign, the DeSantis-backing super PAC staked out some new territory by largely funding the candidate’s ground game, recruiting and training organizers in Iowa and sending them out early to engage Iowa Republicans face-to-face.
And the super PAC touted that the candidate’s wife went door to door with Never Back Down canvassers.

Donald Trump's stroll to victory in Iowa was a foregone conclusion. This doesn't make it any less shocking

Retrieved on:

Tuesday, January 16, 2024

In Iowa over the weekend, blizzards described as “life-threatening” by the National Weather Service brought with them temperatures well below freezing, up to 25 centimetres of snow and ferocious winds.

Key Points:

In Iowa over the weekend, blizzards described as “life-threatening” by the National Weather Service brought with them temperatures well below freezing, up to 25 centimetres of snow and ferocious winds.
In these terrible conditions on Monday night, Republicans in the Hawkeye state gathered to choose their preferred candidate for president of the United States.
Iowa holds a caucus vote in presidential nominating contests, as opposed to most other states, which hold primary votes.

Iowa was always Trump’s for the taking

Even when he was not physically present in the state – which was a lot of the time – this contest was already all about Trump.
As bitter as the campaigning between these candidates has been, it has been almost entirely aimed at each other.
Just as predicted, Trump won Iowa by an overwhelming margin, with DeSantis and Haley neck and neck for second place.

The extent of Trump’s power over the party

To an extent that is almost impossible to fathom, Trump continues to dominate the Republican Party.
But the size and extent of Trump’s victory in Iowa does not tell the whole story.
Each of his challengers has defined their pitch for power largely in deference to Trump and have studiously avoided taking him on directly.
Ramaswamy, meanwhile, has sought to present himself (with little success) as a sleeker, next-generation Trump.

What does Iowa portend for democracy itself?

The positioning around Iowa, and the result, consolidate dynamics that have been underway for some time.
Every single Republican candidate who polled in Iowa is seeking to be the standard bearer of this movement.
The current trajectory is clear, and it is dangerous: dangerous for American democracy, and as a result, dangerous for the world.

Emma Shortis is senior researcher in international and security affairs at The Australia Institute, an independent think tank. Liam Byrne does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.