Scarcity Effects of QE: A Transaction-Level Analysis in the Bund Market

43 Pages Posted: 24 Apr 2017

See all articles by Kathi Schlepper

Kathi Schlepper

Deutsche Bundesbank; Goethe University Frankfurt

Heiko Hofer

Deutsche Bundesbank

Ryan Riordan

Smith School of Business

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 3 versions of this paper

Date Written: 2017

Abstract

This paper investigates the scarcity effects of quantitative easing (QE) policies, drawing on intra-day transaction-level data for German government bonds, purchased under the Public Sector Purchase Program (PSPP) of the ECB/Eurosystem. This paper is the first to match high-frequency QE purchase data with high-frequency inter-dealer data. We find economically significant price impacts at high (minute-by-minute) and low (daily) frequencies, highlighting the relevance of scarcity effects in bond markets. Asset purchase policies are not without side effects, though, as the induced scarcity has an adverse impact on liquidity conditions as measured by bid-ask spreads and inter-dealer order book depth. We further show that the price impact varies greatly with market conditions: it is considerably higher during episodes of illiquidity and when yields are higher.

Keywords: Quantitative Easing, European Central Bank, Scarcity Channel, Bond Market Liquidity, High-Frequency Data

JEL Classification: E52, E63, G11, G12, H63

Suggested Citation

Schlepper, Kathi and Hofer, Heiko and Riordan, Ryan and Schrimpf, Andreas, Scarcity Effects of QE: A Transaction-Level Analysis in the Bund Market (2017). Bundesbank Discussion Paper No. 06/2017. Available at SSRN: https://ssrn.com/abstract=2956675

Kathi Schlepper (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Heiko Hofer

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Ryan Riordan

Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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