Portfolio rebalancing and the transmission of large-scale asset purchase programs: Evidence from the Euro area

Ugo Albertazzi, Bo Becker and Miguel Boucinha

Journal of Financial Intermediation, 2021, vol. 48, issue C

Abstract: The European Central Bank's large-scale asset purchase program targeted safe assets, but also aimed to impact prices of risky assets. The mechanism for this is the “portfolio rebalancing channel”, where financial institutions’ portfolio decisions impact financial prices more broadly. We examine this mechanism using cross-sectional heterogeneity in how the financial portfolios of different sectors of the European economy were affected around the purchase program. We find evidence of rebalancing. In vulnerable countries, where macroeconomic unbalances and relatively high risk premia remained, we document rebalancing towards riskier securities. In less vulnerable countries, based on granular information for large European banks, we document rebalancing toward bank loans.

Keywords: Quantitative easing; Unconventional monetary policy; Portfolio rebalancing; Search for yield (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:48:y:2021:i:c:s1042957320300504

DOI: 10.1016/j.jfi.2020.100896

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