A Portfolio Model of Quantitative Easing

Christensen, Jens H. E.; Krogstrup, Signe

doi:10.2139/ssrn.2777690

Cited by 9 publications

(9 citation statements)

References 27 publications

(31 reference statements)

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“…The SNB's tools for monetary policy implementation during the period of March 2009 to January 2015, namely liquidity-providing asset purchases and foreign exchange interventions, also affected long-term interest rates through term and risk premiums (Christensen and Krogstrup 2016). The measures did, however, also succeed in affecting the 3-month Swiss franc Libor rate within its target band, and this variation is what we take advantage of in our empirical analysis.…”

Section: Swiss Monetary Policy Implementationmentioning

confidence: 84%

Term structure dynamics at low and negative interest rates—evidence from Switzerland

Grisse

Schumacher

2018

Swiss J Economics Statistics

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This paper studies the transmission of changes in short-term interest rates to longer-term government bond yields when interest rates are at very low levels or negative. We focus on Switzerland, where short-term interest rates have been at zero since late 2008 and negative since the beginning of 2015. The expectations hypothesis of the term structure implies that as nominal interest rates approach their lower bound, the effect of short-term rates on longer-term yields should decline, and positive short rate changes should have larger absolute effects than negative short rate changes. Contrary to studies of other countries, we find no evidence for a decline in the effect of short rate changes for the low-interest rate period using Swiss data. However, we do find evidence for the predicted asymmetric effect for positive and negative short rate changes during the period when short-term rates are close to zero. This asymmetry normalized again after the introduction of negative interest rates.

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Section: Swiss Monetary Policy Implementationmentioning

confidence: 84%

Term structure dynamics at low and negative interest rates—evidence from Switzerland

Grisse

Schumacher

2018

Swiss J Economics Statistics

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“…As noted by Bonner (2016, p. 2), within these rules, government securities hold a 0% risk weighting, leading to what is termed a 'regulatory effect' of choosing to hold these bonds (Andreasen et al 2015, p. 7). Indeed, the literature suggests that bank regulation, especially risk-based capital constraints, may weaken the effectiveness of non-standard monetary operations as banks ensure that they meet their capital requirements (Peek and Rosengren 1993, p. 36;1995, p. 23;Albertazzi et al 2016, p. 16 andChristensen andKrogstrup 2018, p. 20). Second, in an attempt to avoid negative deposit rates on excess reserves induced by the APP, banks may have managed their level of reserves and in particular, pushed on excess reserves like a 'hot potato' to other banks (Ryan and Whelan 2019, p. 36).…”

Section: Portfolio Rebalancing In Banks and Householdsmentioning

confidence: 99%

Transmission Channels of Central Bank Asset Purchases in the Irish Economy

Cawley

Finnegan

2019

Economies

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The European Central Bank (ECB) engaged in an expanded asset purchase programme (APP) from 2014 to 2018 to help achieve their primary objective of price stability. Total assets purchased over this period was over €2.5 trillion and new net purchases ended in December 2018. This paper identifies whether the ECB’s APP in Ireland operated through the portfolio rebalancing channel, the signalling channel or the lending channel. It presents a quantitative descriptive analysis of some key Irish data sets in the 2014–2018 period and uses time-series visualisation and trend analysis to identify trends and correlations. There are a number of preliminary findings. First, much downward pressure on sovereign debt yields and spreads had occurred before the APP began due to previous accommodative monetary policy and the signalling channel. Second, the corporate-sector purchase programme (CSPP) did impact on targeted bonds and may have had spill overs to non-targeted bonds. Third, the APP did not lead to much increased lending to the SME sector. Fourth, while households did engage in traditional portfolio rebalancing, Irish banks did not and were perhaps more motivated to meet their capital requirements and manage their level of reserves. This is a first step towards understanding the transmission channels of ECB policy in Ireland and more work needs to be done to detangle the transmission of the most recent APP from other factors and consider these findings in the context of theoretical models. Such work is important to help inform policy makers on enhancing the transmission mechanism to the Irish economy of the recently launched new ECB asset purchase programme from November 2019.

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“…Both ∑ and ∑ increase owing to QE and so ∑ increases as well, as depicted in Figure 4. (Christensen and Krogstrup, 2016). This channel works if banks substitute their central bank reserves ( =2 ) in higher yielding assets such as risky government bonds ( =2 ), because these are more profitable.…”

Section: Frameworkmentioning

confidence: 99%