Description:
This paper investigates the impact of the European Central Bank's unconventionalmonetary policies (UMP) between 2008-2019 on the European government bond yields.It adopts a novel econometric approach that combines a data-rich factor analysis andVAR with heteroskadasiticy based identification. The results identify a significant andsubstantial impact for all countries and maturities, but stronger and persistent impactfor the periphery. When we decompose the impact into the separate yield components,we find that the UMP decreases the market component for all countries. It decreasesthe risk-mutualization component for the periphery permanently at the cost of a smallincrease for the core countries, which provides evidence for the risk-mutualization inthe European Monetary Union.