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Quantitative easing and preferred habitat investors in the euro area bond market

Author

Listed:
  • Martijn Boermans
  • Robert Vermeulen

Abstract

Quantitative easing (QE) aims to lower long term interest rates and stimulate economic growth via the portfolio rebalancing channel. One of the assumptions for QE to work is that there are investors with strong preferences to hold long term bonds, i.e. so called preferred habitat investors. This paper investigates whether the ECB's Public Sector Purchase Programme (PSPP) affected euro area investors' demand for bonds using granular securities holdings data. The results show strong evidence that euro area investors acted as preferred habitat investors. These findings hold across all major euro area investors (banks, insurance companies, pension funds and investment funds). The results suggest that since the sellers of bonds in response to QE in the euro area are different from those that sold to the Fed, BoE and BoJ, policymakers need to pay particular attention to demand by non-euro area investors, especially if the ECB plans to reduce its balance sheet.

Suggested Citation

  • Martijn Boermans & Robert Vermeulen, 2018. "Quantitative easing and preferred habitat investors in the euro area bond market," DNB Working Papers 586, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:586
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    File URL: https://www.dnb.nl/en/binaries/Working%20Paper%20No.%20586_tcm47-373305.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jan Willem van den End, 2019. "Effects of QE on sovereign bond spreads through the safe asset channel," DNB Working Papers 647, Netherlands Central Bank, Research Department.
    2. Martijn Boermans & Viacheslav Keshkov, 2018. "The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration," DNB Working Papers 590, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    quantitative easing; sovereign bonds; European Central Bank; PSPP; securities holdings statistics;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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