Real Effects of the ECB's Quantitative Easing: A Housing Portfolio Channel

51 Pages Posted: 19 Mar 2021 Last revised: 25 May 2021

See all articles by Daniel te Kaat

Daniel te Kaat

University of Groningen

Chang Ma

Fudan University - Fanhai International School of Finance (FISF)

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: February 9, 2021

Abstract

We propose a new housing portfolio channel through which a central bank's quantitative easing (QE) can affect local consumption and hence output growth. To illustrate the working of this channel of QE transmission, we set up a simple portfolio model with segmented local housing markets. In our model, a national financial intermediary manages wealth on behalf of local households and responds to QE interventions by rebalancing its portfolio from bonds to houses. As a result, house prices increase, expected future returns fall, and the total household portfolio return declines, boosting the local economy by stimulating current consumption. The more scarce is land supply, the tighter the local housing supply, and the stronger the QE impact on the portfolio return and hence consumption and output growth. We investigate this channel empirically in German region-level data. Identification exploits the exogenous variation in land supply scarcity across regions to construct a measure of exposure to the housing portfolio channel. We estimate that a one-standard-deviation increase in the size of the ECB's balance sheet raises GDP growth in the most exposed regions by 2-3 percentage points more than in the least exposed ones, cumulatively, during the 2010-2017 period. The housing portfolio channel can account for 60-80% of this regional growth differential, with the remaining portion accounted for by the term spread and credit and collateral channels.

Keywords: Unconventional Monetary Policy, Housing Portfolio Channel, EONIA, Quantitative Easing, Regional Business Cycles, Germany, Real Estate

JEL Classification: E3, E4, E5, R3

Suggested Citation

te Kaat, Daniel and Ma, Chang and Rebucci, Alessandro, Real Effects of the ECB's Quantitative Easing: A Housing Portfolio Channel (February 9, 2021). Available at SSRN: https://ssrn.com/abstract=3782131 or http://dx.doi.org/10.2139/ssrn.3782131

Daniel Te Kaat

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Chang Ma (Contact Author)

Fudan University - Fanhai International School of Finance (FISF) ( email )

China

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
36
Abstract Views
238
PlumX Metrics