Does the european quantitative easing has an impact on the targeted securities liquidity premium?

Abstract

We argue that large-scale asset purchases of the ECB lead to a decrease of the priced frictions in the targeted securities through a transmission channel. More precisely, we study the effect of the purchases of the inflation-linked central government bonds included in the European QE on the ILGB and inflation swap markets. Based on the liquidity transmission channel described by Christensen and Gillan (2016), we find that even if there is an evidence of this impact, it is not as huge as the one observed on the American market. We find that the difference in the liquidity premium varies from -0.024 to -1.152 basis points at five-year maturity, and from 0.166 to -1.182 basis points at ten-year maturity.