Portfolio Rebalancing and the Transmission of Large-Scale Asset Programmes: Evidence from the Euro Area

39 Pages Posted: 2 Feb 2018

See all articles by Ugo Albertazzi

Ugo Albertazzi

ECB -DG Monetary Policy

Bo Becker

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); ECGI

Miguel Boucinha

European Central Bank (ECB)

Date Written: January 31, 2018

Abstract

Large-scale asset programmes aim to impact the real economy through the financial system. The ECB has focused much of its policies on safe assets. An intended channel of transmission of this type of programme is the “portfolio rebalancing channel”, whereby investors are influenced to shift their investments away from such safe assets towards assets with higher expected returns, including lending to households and firms. We examine the portfolio rebalancing channel around the ECB’s asset purchase program (APP). We exploit cross-sectional heterogeneity in the impact of APP on the valuation of the financial portfolio held by different sectors of the European economy. Overall, our results provide evidence of an active portfolio rebalancing channel. In more vulnerable countries, where macroeconomic unbalances and relatively high risk premia remain, APP was mostly reflected into a rebalancing towards riskier securities. In less vulnerable countries, where constraints on loan demand and supply are less significant, the rebalancing was observed mostly in terms of bank loans. Examining large European banks, we confirm similar geographical differences.

Keywords: quantitative easing, unconventional monetary policy, portfolio rebalancing, search for yield

JEL Classification: E44, E51, G21

Suggested Citation

Albertazzi, Ugo and Becker, Bo and Boucinha, Miguel, Portfolio Rebalancing and the Transmission of Large-Scale Asset Programmes: Evidence from the Euro Area (January 31, 2018). ECB Working Paper No. 2125. Available at SSRN: https://ssrn.com/abstract=3116084

Ugo Albertazzi (Contact Author)

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Bo Becker

Stockholm School of Economics ( email )

Drottninggatan 98
Dept. of Finance
111 60 Stockholm, 11160
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ECGI ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Miguel Boucinha

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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