Stabilising market expectations through a market tool: a proposal for an enhanced TPI

Abstract This paper puts forward a proposal to complete the ECB Transmission Protection Instrument (TPI) with aim of making it more effective in anchoring yields European sovereign debts Member States’ fundamentals. We use model which fluctuate within bands, we specify following two alternative approaches: stochastic and deterministic. The resulting fluctuation's interval represents range that can be seen as justified by fundamentals; outside band would instead trigger intervention foreseen TPI. minimizes risk moral hazard, fluctuation bands vary each country's creditworthiness changes. Moreover, is directly implementable existing Treaties.