Quantitative Easing and the Safe Asset Illusion
52 Pages Posted: 11 Jun 2021
Date Written: June 9, 2021
The massive recourse to quantitative easing (QE) calls for a better understanding of its eﬀects on safe assets. Based on a simple balance sheet framework, we show how QE impacts the total amount, cross-sectional distribution, and composition of safe assets in the economy. Analyzing the ECB’s Public Sector Purchase Programme (PSPP), we ﬁnd that the amount of universally accessible safe assets decreases and there is a transfer of safe assets from the non-bank to the banking sector. We call this phenomenon the safe asset illusion. The sectoral shift in the holding structure of safe assets has important implications for ﬁnancial stability and the cost of secured liquidity.
Keywords: Safe assets, quantitative easing, Public Sector Purchase Programme, secured deposits, repurchase agreements
JEL Classification: G12, G18, G21, E43, E52, D40
Suggested Citation: Suggested Citation