(...) the latest issue (No. 120) of the ECB Research Bulletin, entitled "A diverse investor base impacts the effectiveness of large-scale asset purchases".
Johannes Breckenfelder
(Directorate General Research, European Central Bank) and Veronica De
Falco (Harvard University) examine how different investors adjust their
security holdings in response to central bank purchases and how such
adjustments
– also known as portfolio rebalancing – impact the effectiveness of
central bank purchase programmes.
Authors find that a diverse investor
base selling to the central bank affects both the direct and indirect
impacts of large-scale purchases.
They show that
the direct effects of purchases on prices are smaller when securities
are held predominantly by more elastic investors, i.e. mutual funds and
banks.
Their results can also be applied to thinking about the impact of
quantitative tightening (QT)
The ECB Research Bulletin features a selection of
recent work on policy-relevant topics by ECB economists. Published on a
monthly basis, the articles in the Research Bulletin are intended for a
general audience. The views expressed in each
article are those of the authors and do not necessarily represent the
views of the European Central Bank and the Eurosystem. (...)
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