Inspecting the Mechanism of Quantitative Easing in the Euro Area

47 Pages Posted: 9 Sep 2016 Last revised: 23 Mar 2018

See all articles by Ralph S. J. Koijen

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Francois Koulischer

Luxembourg School of Finance

Benoît Nguyen

Banque de France; Université Paris I Panthéon-Sorbonne; European Central Bank (ECB) - Directorate General Economics

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Date Written: February 28, 2018

Abstract

Using new data on security-level portfolio holdings by investor type and across 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, sovereign, and corporate credit risk exposures across investor sectors and geographies. We find that 70% of ECB purchases are sold by the foreign sector and that risk mismatch, if anything, reduces. We use an instrumental variables estimator to show that the average impact on yields was -13bp. We connect the portfolio rebalancing and price effects by estimating a sector-level asset demand system for government debt.

Keywords: Quantitative Easing, Flow of Risk, Portfolio Rebalancing, Risk Concentration

JEL Classification: E52, E58, G2, G15

Suggested Citation

Koijen, Ralph S. J. and Koulischer, Francois and Nguyen, Benoît and Yogo, Motohiro, Inspecting the Mechanism of Quantitative Easing in the Euro Area (February 28, 2018). Banque de France Working Paper No. 601. Available at SSRN: https://ssrn.com/abstract=2836353 or http://dx.doi.org/10.2139/ssrn.2836353

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francois Koulischer

Luxembourg School of Finance ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

HOME PAGE: http://https://sites.google.com/site/francoiskoulischer/

Benoît Nguyen

Banque de France ( email )

Paris
France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

European Central Bank (ECB) - Directorate General Economics

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Motohiro Yogo

Princeton University - Department of Economics ( email )

Julis Romo Rabinowitz Building
Princeton, NJ 08544
United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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