The Effects of Monetary Policy Shocks on the Liquidity of the Secondary Government Bond Market: A SVAR Approach

This thesis aims to investigate the role of monetary policy in shaping the liquidity conditions of the Italian sovereign bond market. Liquidity constitutes a pivotal element for financial stability, ensuring that large volumes of bonds can be traded at low transaction costs. Drawing inspiration from the works of Altavilla (2019) and Jarociński and Karadi (2020), the study examines how the distinction between information shocks and pure monetary policy shocks affects market liquidity within a structural vector autoregression (SVAR) framework. The empirical analysis is underpinned by an enriched dataset of high-frequency monetary policy surprises, complemented by granular liquidity measures derived from a rich dataset provided by the MTS trading platform and the Italian Ministry of Economy and Finance (MEF). This thesis sheds light on the complex interactions between central bank actions, investor expectations, and sovereign debt markets in the euro area. The findings aim to contribute to the design of effective monetary policy frameworks and to enhance the resilience of government bond market in times of heightened uncertainty.