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Portfolio rebalancing and the transmission of large-scale asset purchase programs: Evidence from the Euro area

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  • Albertazzi, Ugo
  • Becker, Bo
  • Boucinha, Miguel

Abstract

The European Central Bank's large-scale asset purchase program targeted safe assets, but also aimed to impact prices of risky assets. The mechanism for this is the “portfolio rebalancing channel”, where financial institutions’ portfolio decisions impact financial prices more broadly. We examine this mechanism using cross-sectional heterogeneity in how the financial portfolios of different sectors of the European economy were affected around the purchase program. We find evidence of rebalancing. In vulnerable countries, where macroeconomic unbalances and relatively high risk premia remained, we document rebalancing towards riskier securities. In less vulnerable countries, based on granular information for large European banks, we document rebalancing toward bank loans.

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  • Albertazzi, Ugo & Becker, Bo & Boucinha, Miguel, 2021. "Portfolio rebalancing and the transmission of large-scale asset purchase programs: Evidence from the Euro area," Journal of Financial Intermediation, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:jfinin:v:48:y:2021:i:c:s1042957320300504
    DOI: 10.1016/j.jfi.2020.100896
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    Cited by:

    1. Tom Hudepohl, 2022. "The rebalancing channel of QE: New evidence at the security level in the euro area," Working Papers 756, DNB.
    2. de Haan, Leo & Vermeulen, Robert, 2021. "Sovereign debt ratings and the country composition of cross-border holdings of euro area sovereign debt," Journal of International Money and Finance, Elsevier, vol. 119(C).
    3. Breckenfelder, Johannes & De Falco, Veronica, 2024. "A diverse investor base impacts the effectiveness of large-scale asset purchases," Research Bulletin, European Central Bank, vol. 120.
    4. Daniel Carvalho & Martin Schmitz, 2023. "Shifts in the portfolio holdings of euro area investors in the midst of COVID‐19: Looking‐through investment funds," Review of International Economics, Wiley Blackwell, vol. 31(5), pages 1641-1687, November.
    5. Breckenfelder, Johannes & De Falco, Veronica, 2024. "Investor heterogeneity and large-scale asset purchases," Working Paper Series 2938, European Central Bank.
    6. Bernardino Adão & Alberto López Martín, 2023. "Risk reallocation under Central Bank’s large-scale asset purchases," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    7. Dusan Stojanovic, 2023. "Quantitative Easing in the Euro Area: Implications for Income and Wealth Inequality," CERGE-EI Working Papers wp760, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    8. Gnabo, Jean-Yves & Soudant, Joey, 2022. "Monetary policy and portfolio rebalancing: Evidence from European equity mutual funds," Journal of Financial Stability, Elsevier, vol. 63(C).
    9. Gnewuch, Matthias, 2022. "Spillover effects of sovereign debt-based quantitative easing in the euro area," European Economic Review, Elsevier, vol. 145(C).
    10. Michail Nerantzidis & Nikolaos Stoupos & Panayiotis Tzeremes, 2024. "Realized Volatility Spillover Connectedness among the Leading European Currencies after the End of the Sovereign-Debt Crisis: A QVAR Approach," JRFM, MDPI, vol. 17(8), pages 1-17, August.
    11. Marie Finnegan & Supriya Kapoor, 2023. "ECB unconventional monetary policy and SME access to finance," Small Business Economics, Springer, vol. 61(3), pages 1253-1288, October.
    12. Andrejs Zlobins, 2023. "Is There a Portfolio Rebalancing Channel of QE in Latvia?," Working Papers 2023/05, Latvijas Banka.
    13. Laeven, Luc & Maddaloni, Angela & Mendicino, Caterina, 2022. "Monetary policy, macroprudential policy and financial stability," Working Paper Series 2647, European Central Bank.
    14. Jaydip Sen & Arup Dasgupta & Subhasis Dasgupta & Sayantani Roychoudhury, 2023. "A Portfolio Rebalancing Approach for the Indian Stock Market," Papers 2310.09770, arXiv.org.
    15. Altavilla, Carlo & Fernandes, Cecilia Melo & Ongena, Steven & Scopelliti, Alessandro, 2022. "Bank bond holdings and bail-in regulatory changes: evidence from euro area security registers," Working Paper Series 2758, European Central Bank.
    16. Martijn Boermans, 2022. "A literature review of securities holdings statistics research and a practitioner’s guide," Working Papers 757, DNB.

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    More about this item

    Keywords

    Quantitative easing; Unconventional monetary policy; Portfolio rebalancing; Search for yield;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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