Inspecting the Mechanism of Quantitative Easing in the Euro Area

41 Pages Posted: 9 Sep 2016 Last revised: 30 Jan 2020

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

Motohiro Yogo

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

Multiple version iconThere are 3 versions of this paper

Date Written: January 28, 2020

Abstract

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

Koijen, Ralph S. J. and Koulischer, Francois and Nguyen, Benoît and Yogo, Motohiro, Inspecting the Mechanism of Quantitative Easing in the Euro Area (January 28, 2020). Banque de France Working Paper No. 601; University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-100. 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 )

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

Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Francois Koulischer

Luxembourg School of Finance ( email )

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Luxembourg

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

Benoît Nguyen

Banque de France ( email )

Paris
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

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United States

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