Section 2

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

Retrieved on: 
Friday, April 19, 2024

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.

Monetary asmmetries without (and with) price stickiness

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    Is home bias biased? New evidence from the investment fund sector

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    Thursday, April 18, 2024
    Rule of law, Journal of Accounting Research, Capital control, Domestic, CEPII, Research Papers in Economics, M. B, Regression analysis, Journal of International Economics, Foreign, Economic growth, Methodology, Row, International, Intuition, Risk, Heritage, Economic development, Goethe University Frankfurt, Overweight, Journal of Monetary Economics, Accounting research, International business, Paper, Political economy, Journal of Financial Economics, Environment, Website, United, Category, World Bank, Probability, Medical classification, Sun, Appendix, Handbook, G11, Quarterly Journal of Economics, Frankfurt, Institution, Investment, International economics, Journal of Political Economy, Corporation, G15, Logic, Dow Jones, PDF, Classification, ECB, CEIC, Károlyi, Policy, Outline, Household, Social science, JEL, Real, Bias, FDI, Journal, Research, Journal of Economic Literature, Credit, The Journal of Finance, Literature, Nationalization, European Central Bank, AA, Culture, Growth, Monetary economics, Section 5, Kho, Rule, Rogoff, Developed country, AAA, Finance, SHS, Control, Variable, Section 4, Language, Section 3, Role, Economy, Financial economics, Section 2, Freedom, Central bank, Incidence, Law, The Heritage Foundation, American Economic Review, Obstfeld, SSRN, Foreign direct investment, G23, Corruption, Quarterly Journal, Financial statement analysis, GDP, IMF Economic Review, Schumacher, University, MVI, Demirci, Dependent and independent variables, Lane, Common, Magazine, Bank, Reproduction, Security (finance)

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      A new measure of firm-level competition: an application to euro area banks

      Retrieved on: 
      Thursday, April 18, 2024

      Abstract

      Key Points: 
        • Abstract
          This paper extends Boone (2008) by introducing a competition measure at the individual
          firm level rather than for an entire market segment.
        • We apply this extended Boone indicator to individual bank-level competition
          in the loan market in the four largest euro area countries and Austria.
        • Our new measure of firm-level competition enriches and complements
          other competition measures and provides a promising starting point for future market
          power analyses.
        • The only measure among non-structural measures that is based on the
          concept of competition as a process of rivalry is the Boone (2008) indicator.
        • We introduce
          a new performance measure of competition by extending the Boone indicator to the
          individual firm level.
        • Introduction
          The ability to reliably measure competition is valuable to researchers, analysts, and
          policymakers, especially antitrust authorities, financial supervisors, and central banks.
        • One broad
          category of indicators often used to measure competition are structural competition
          measures, such as static concentration measures, and dynamic measures, e.g., entry and
          exit rates.
        • Out of these measures, the only measure based on the
          concept of competition as a process of rivalry is the Boone indicator.
        • This study introduces a new performance measure of competition by extending the
          Boone indicator to the individual firm level.
        • It thus measures the
          increase in profits in percent of one percentage point increase in efficiency, with marginal
          costs as measure of efficiency.
        • We extend the theoretical
          underpinning of the measurement of competition for the entire market of Boone (2008) by
          a new measure of individual firm-level competition.
        • A concern of the literature is the gap
          between the practical application and the theoretical framework of Boone (2008).
        • We introduce within the same theoretical
          framework a new measure of competition on firm level, the MRP.
        • Our new
          measure significantly augments the antitrust evaluative framework by shedding light on
          whether a merger results in a less competitive market.
        • Our novel indicator focuses on
          firms? incentives to enhance their relative efficiency, as manifested in the elasticity
          between relative profits and efficiency.
        • However, an inefficient firm that is foreclosed could be more
          competitive than the larger efficient firm that relies on its scale economies.
        • Our new metric of competition unveils
          banks? ability to influence their profitability in the short term by cutting costs relative to
          their peers.
        • The new MRP indicator provides the ability to assess the impact
          of individual banks? competitiveness on their interest rate-setting behaviour in loan
          markets.
        • Incorporating this information promises a more refined understanding of the impact and
          timing of monetary policy rates changes on the real economy.
        • Section 3 introduces within the Boone
          (2008) theoretical framework our new measure of individual firm-level competition,
          including the interpretation of the MRP.
        • Section 4 provides an application of our new
          ECB Working Paper Series No 2925

          6

          individual firm-level competition measure to the loan market.

        • The StructureConduct-Performance paradigm (SCP) provides a traditional framework in the field of
          industrial organization for analysing competition behaviour in markets.
        • Concentrated
          markets ease the possibilities to collude implicitly or explicitly and therefore concentrated
          markets result in higher prices and profits.
        • For example, a tougher competition
          setup may lead to a reallocation of market shares, potentially forcing some firms to exit
          the market.
        • This approach gives firms? strategic behaviour
          central stage and focuses on the strategic interaction on prices and quantities, known as
          conjectural variation.
        • Another measure from
          this strand of literature is the H-statistic developed by Panzar and Rosse (1987).
        • The only competition measure from this performance literature where competition is the
          outcome from a process of rivalry is the Boone indicator.
        • A continuous and monotonically increasing relationship exists between
          RPD and the level of competition if firms are ranked by decreasing efficiency.
        • (2013) compare the Boone indicator with the price-cost margin
          and conclude that the profit elasticity is a more reliable measure of competition.
        • The high
          elasticity of profits to efficiency unequivocally indicates that the high market shares and
          therefore high profits are due to high efficiency.
        • A firm that quickly passes changes to the input prices is seen as a price
          taker with little market power.
        • Indicators of competition tend to measure different phenomenon and may provide
          conflicting messages, as reported for European banking by Carbo et al.
        • Application 2: Test the ?quiet life? and related market structure hypotheses using the
          MRP as competition or market structure measure.
        • Data
          Our application to individual bank-level competition in the euro area loan market uses
          balance sheet and income statement data from the Moody?s Analytics BankFocus for the
          calendar years 2013-2020.
        • As such, most publications
          on competition in the euro area includes the largest four member states.
        • Due to these restrictions the database was reduced to an unbalanced panel of up to 1862
          banks (depending on the year) from five euro area countries.
        • Application 1: Measure bank competition using MRP
          Looking at the distribution of the MRP for individual banks (Fig.
        • A similar finding for the four largest euro area countries as a group is
          reported in Carbo et al.
        • Application 2: Test of market structure hypotheses using MRP
          Our new measure of individual-bank competition can be used to test market structure
          theories.
        • Euro area banks? market power,
          lending channel and stability: the effects of negative policy rates, European Central Bank
          Working Paper, 2790 (February).
        • A
          new approach to measuring competition in the loan markets of the euro area, Applied
          Economics, 43 (23), 3155?3167.
        • Impact of bank competition on the interest rate pass-through in the euro area, Applied
          Economics, 45 (11), 1359?1380.

      Central bank digital currency and monetary policy implementation

      Retrieved on: 
      Thursday, April 18, 2024

      Key Points: 

        Transactional demand for central bank digital currency

        Retrieved on: 
        Thursday, April 18, 2024

        Key Points: 

          Survey on the Access to Finance of Enterprises in the euro area - First quarter of 2024

          Retrieved on: 
          Tuesday, April 9, 2024

          The European Banking Authority (EBA) today published its final Guidelines on the resubmission of historical data under the EBA reporting framework.

          Key Points: 
          • The European Banking Authority (EBA) today published its final Guidelines on the resubmission of historical data under the EBA reporting framework.
          • The Guidelines provide a common approach to the resubmission of historical data by the financial institutions to the competent and resolution authorities in case of errors, inaccuracies or other changes in the data reported, in accordance with the supervisory and resolution reporting framework developed by the EBA.

          Europe Fibercos and Towercos Market Dynamics Report 2024: State of Play, Developments and Strategies in the Context of 5G and Fiber Networks Deployments - ResearchAndMarkets.com

          Retrieved on: 
          Friday, March 29, 2024

          Fibercos and Towercos: Market Dynamics and Opportunities in Europe,' a new Telecom Insider Report, provides an executive-level overview of fiberco and towerco state of play, developments, and strategies, including in the context of 5G and fiber networks deployments.

          Key Points: 
          • Fibercos and Towercos: Market Dynamics and Opportunities in Europe,' a new Telecom Insider Report, provides an executive-level overview of fiberco and towerco state of play, developments, and strategies, including in the context of 5G and fiber networks deployments.
          • 'The report analyzes the key themes and market direction around fibercos and towercos in Europe.
          • It also provides fibercos, towercos, telcos, and ICT vendors with guidance on the best practices related to the fiberco and towerco market.
          • The report provides an overview of current strategies pursued by fibercos, towercos, and telcos, as well as future growth opportunities.

          Europe Fibercos and Towercos Market Dynamics Report 2024: Lessons Learned and Key Takeaways for Telcos and Infrastructure Companies

          Retrieved on: 
          Thursday, March 28, 2024

          DUBLIN, March 27, 2024 /PRNewswire/ --The "Europe Fibercos and Towercos Market Dynamics and Opportunities" report has been added to ResearchAndMarkets.com's offering.

          Key Points: 
          • DUBLIN, March 27, 2024 /PRNewswire/ --The "Europe Fibercos and Towercos Market Dynamics and Opportunities" report has been added to ResearchAndMarkets.com's offering.
          • 'The report analyzes the key themes and market direction around fibercos and towercos in Europe.
          • It also provides fibercos, towercos, telcos, and ICT vendors with guidance on the best practices related to the fiberco and towerco market.
          • Section 4: Key Takeaways and Recommendations: this section provides a summary of key takeaways and recommendations for fibercos, towercos, telcos, and ISPs and a summary of expected market opportunities and growth directions.