Inspecting the Mechanism of Quantitative Easing in the Euro Area

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

Ralph S. J. Koijen

New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Francois Koulischer

Banque centrale du Luxembourg

Benoît Nguyen

Banque de France; Université Paris I Panthéon-Sorbonne

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)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://www.koijen.net

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Francois Koulischer

Banque centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
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

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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