Inspecting the Mechanism of Quantitative Easing in the Euro Area
41 Pages Posted: 9 Sep 2016 Last revised: 30 Jan 2020
Date Written: January 28, 2020
Using new data on security-level portfolio holdings by investor type and for all countries in the euro area, we study portfolio rebalancing during the European Central Bank’s (ECB) purchase programme that started in March 2015. To quantify changes in risk concentration, we estimate the evolution of the distribution of duration, government, and corporate credit risk exposures across investor sectors and regions until the last quarter of 2017. Using these micro data, we show that among all investors, most of the ECB purchases are sold by non-euro area investors, and we do not find evidence that risks get concentrated in certain sectors or geographies. We estimate a sector-level asset demand system using instrumental variables to connect the dynamics of portfolio rebalancing to asset prices. Our estimates imply that government yields declined by 63bp, on average, and the estimates range from -37bp to -77bp across countries.
Keywords: Quantitative Easing, Flow of Risk, Portfolio Rebalancing, Risk Concentration
JEL Classification: E52, E58, G2, G15
Suggested Citation: Suggested Citation