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Capital Market Equilibrium With Imperfect Competition: The Case of the ECB’s Asset Purchase Programme

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  • Christian Koziol

    (University of Tuebingen)

  • Werner Neus

    (University of Tuebingen)

Abstract

We set up a multiperiod, CAPM-type model with imperfect competition between investors in case of an additional price-insensitive market participant. The motivation for this additional actor comes from the ECB’s announcement to buy a substantial amount of securities “whatever it takes” which reflects the willingness to trade in a entirely price-inelastic way. Our model explains the effects on demand functions, equilibrium prices, portfolio holdings and investors’ expected utility. The interaction of price-inelastic additional demand by the ECB, on the one hand, and imperfect competition, on the other hand, causes differentiated results regarding timing strategies, development of prices over time, and utility implications.

Suggested Citation

  • Christian Koziol & Werner Neus, 2020. "Capital Market Equilibrium With Imperfect Competition: The Case of the ECB’s Asset Purchase Programme," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 72(3), pages 369-391, July.
    • Handle: RePEc:spr:schmbr:v:72:y:2020:i:3:d:10.1007_s41464-020-00093-z
    DOI: 10.1007/s41464-020-00093-z
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    References listed on IDEAS

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    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
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    7. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
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