Assessing the Effects of Unconventional Monetary Policy on Pension Funds Risk Incentives

Sabri Boubaker, Dimitrios Gounopoulos, Duc Khuong Nguyen and Nikos Paltalidis

No 2016-005, Working Papers from Department of Research, Ipag Business School

Abstract: US public pension funds deficits remain stubbornly high even though market conditions have improved in the post-crisis period. This article examines the role of lower short- and long-term interest rates imposed by the use of unconventional monetary policy on pension funds risk taking and asset allocation behavior. We quantify the effects of the Zero Lower Bound policy and the launch of unconventional monetary policy measures by using two structural Vector AutoRegression (VAR) models, a Bayesian VAR and a Markov switching-structural VAR. We provide the first comprehensive evidence showing that persistently low interest rates and falling Treasury yields cause a substantial increase in pension funds risk and portfolios beta. Additionally, we document that the severe funding shortfall in many pension schemes is, to a large extent, associated with and prompted by changes in the monetary policy framework.

Keywords: Pension funds; Unconventional monetary policy; Asset allocation; Zero lower bound (search for similar items in EconPapers)
JEL-codes: E52 G11 G23 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2016-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://faculty-research.ipag.edu/wp-content/uploa ... IPAG_WP_2016_005.pdf (application/pdf)

Related works:
Working Paper: Assessing the effects of unconventional monetary policy on pension funds risk incentives (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ipg:wpaper:2016-005

Access Statistics for this paper

More papers in Working Papers from Department of Research, Ipag Business School Contact information at EDIRC.
Bibliographic data for series maintained by Ingmar Schumacher ().