Signed Articles: ‘The Irish Government Bond Market and Quantitative Easing’ & ‘Foreign Exchange and External Sector Developments in China’

The Central Bank of Ireland has published two signed article from the second Quarterly Bulletin of 2019, due to be published on 4 April 2019.

“The Irish Government Bond Market and Quantitative Easing’ (PDF 582.67KB), by John Larkin, PJ Anderson and Sean Furlong, examines the impact of the ECB’s Asset Purchase Programme (APP) on the Irish Government bond market, assessing the impact on yields, market structure and liquidity.

The key findings are:

• The announcement of the ECB’s asset purchase programme reduced Irish sovereign bond yields significantly and contributed to a flattening of the yield curve. This result is consistent with findings elsewhere.
• The asset purchase programme has contributed to conditions that support increased issuance of Irish sovereign debt at lower interest rates. As a result, this reduced the State’s interest burden.
• The study finds that the largest and most significant downward impact on yields occurred over the initial announcements of the programme, but also, somewhat surprisingly, over the final announcements during the later phase.

A second article, ‘Foreign Exchange and External Sector Developments in China’ (PDF 369.71KB), by Lorenz Emter and Peter McQuade, examines key features of the Chinese external sector and exchange rate arrangements in the context of a number of episodes of capital flow and exchange rate volatility in recent years.

The key findings are:

• Despite market restrictions, the paper notes that periods of financial stress are typically associated with exchange market pressure on the Renminbi (RMB) and sudden stops in private capital inflows. 
• The paper notes that while current indicators provide little indication of further rapid RMB depreciation in the very short run, there are several risk factors that could trigger currency instability in the future. These risk factors include: i) an escalating trade war undermining Chinese growth; ii) internal and external pressure to liberalise financial markets jeopardising successful exchange rate management; iii) domestic financial market vulnerabilities undermining investor sentiment.
• The increasing size of the Chinese economy implies that a hard landing could entail adverse spillovers to the global economy. This also applies to Ireland, albeit primarily through indirect channels.

Notes

• The views expressed in these articles are not necessarily those held by the Central Bank of Ireland.