Inspecting the mechanism of quantitative easing in the euro area

Using security-level holdings for all euro-area investors, we study portfolio rebalancing during the quantitative easing program from March 2015 to December 2017. Foreign investors outside the euro area accommodated most of the Eurosystem’s purchases. Duration, government credit, and corporate credi...

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Bibliographic Details
Published in:Journal of financial economics 2021-04, Vol.140 (1), p.1-20
Main Authors: Koijen, Ralph S.J., Koulischer, François, Nguyen, Benoît, Yogo, Motohiro
Format: Article
Language:English
Subjects:
Bonds
Business schools
Central banks
Credit risk
Estimates
Euro
Eurozone
Financial markets
Foreign investments
Government bonds
Investors
Marketing research
Monetary policy
Portfolio management
Portfolio rebalancing
Prices and rates
Quantitative easing
Risk concentration
Unconventional monetary policy
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Summary:Using security-level holdings for all euro-area investors, we study portfolio rebalancing during the quantitative easing program from March 2015 to December 2017. Foreign investors outside the euro area accommodated most of the Eurosystem’s purchases. Duration, government credit, and corporate credit risk did not get concentrated in particular regions or investor sectors. We estimate a demand system for government bonds by instrumental variables to relate portfolio rebalancing to yield changes. Government bond yields decreased by 65 basis points on average, and this estimate varies from 38 to 83 basis points across countries.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2020.11.006