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Inspecting the mechanism of quantitative easing in the euro area

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  • Koijen, Ralph S.J.
  • Koulischer, François
  • Nguyen, Benoît
  • Yogo, Motohiro

Abstract

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.

Suggested Citation

  • Koijen, Ralph S.J. & Koulischer, François & Nguyen, Benoît & Yogo, Motohiro, 2021. "Inspecting the mechanism of quantitative easing in the euro area," Journal of Financial Economics, Elsevier, vol. 140(1), pages 1-20.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:1:p:1-20
    DOI: 10.1016/j.jfineco.2020.11.006
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    More about this item

    Keywords

    Portfolio rebalancing; Quantitative easing; Risk concentration; Unconventional monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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