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Do Asset Purchase Programs Push Capital Abroad?

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Abstract

Euro area sovereign bond yields fell to record lows and the euro weakened after the European Central Bank (ECB) dramatically expanded its asset purchase program in early 2015. Some analysts predicted massive financial outflows spilling out of the euro area and affecting global markets as investors sought higher yields abroad. These arguments ignore balance of payments accounting, which requires any financial outflow from the euro area to be matched by a similar-sized inflow, absent a quick and substantial current account improvement. The focus on cross-border financial flows also is misguided since, according to asset pricing principles, the euro and global asset prices can move without any change in financial outflows.

Suggested Citation

  • Thomas Klitgaard & David O. Lucca, 2015. "Do Asset Purchase Programs Push Capital Abroad?," Liberty Street Economics 20150812, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87053
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    Cited by:

    1. McQuade, Peter & Falagiarda, Matteo & Tirpák, Marcel, 2015. "Spillovers from the ECB's non-standard monetary policies on non-euro area EU countries: evidence from an event-study analysis," Working Paper Series 1869, European Central Bank.

    More about this item

    Keywords

    balance of payments; QE; ECB;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets
    • F00 - International Economics - - General - - - General

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