Inspecting the Mechanism of Quantitative Easing in the Euro Area
46 Pages Posted: 9 Sep 2016 Last revised: 1 Aug 2019
Date Written: February 28, 2018
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
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