A Portfolio Model of Quantitative Easing

Jens Christensen and Signe Krogstrup

No WP16-7, Working Paper Series from Peterson Institute for International Economics

Abstract: This paper presents a portfolio model of asset price effects arising from large-scale asset purchases by central banks—commonly known as quantitative easing (QE). Two financial frictions, segmentation of the market for central bank reserves and imperfect asset substitutability, give rise to two distinct portfolio effects. One derives from the reduced supply of the purchased assets. The other runs through banks’ portfolio responses to the created reserves and is independent of the assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.

Keywords: : unconventional monetary policy; transmission; reserve-induced portfolio balance channel (search for similar items in EconPapers)
JEL-codes: E43 E50 E52 E58 G11 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: A Portfolio Model of Quantitative Easing (2016)
Working Paper: A Portfolio Model of Quantitative Easing (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:iie:wpaper:wp16-7

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