The Portfolio Rebalancing Channel of Quantitative Easing

GATE Working Paper series, WP 1625, 2016

36 Pages Posted: 30 Jul 2016

See all articles by Valentin Jouvanceau

Valentin Jouvanceau

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Date Written: July 29, 2016

Abstract

This paper analyzes the portfolio rebalancing channel of Quantitative Easing (QE hereafter) interventions. First, we identify the effects of a QE shock using a Bayesian VAR on US data using a sign and zero restrictions identification scheme. We find that QE shocks have substantial effects on corporate spreads with different ratings, supportive of a portfolio rebalancing channel. Second, we build a DSGE model with a securitzation mechanism. We confront the resulting impulse response functions to those uncovered by our VAR analysis, and find a fairly good match. Finally, we show that the portfolio rebalancing channel crucially affects the transmission of QE shocks to real economy.

Keywords: Quantitative easing, securitization, financial intermediation, portfolio rebalancing channel

JEL Classification: E44, E52, G2

Suggested Citation

Jouvanceau, Valentin, The Portfolio Rebalancing Channel of Quantitative Easing (July 29, 2016). GATE Working Paper series, WP 1625, 2016, Available at SSRN: https://ssrn.com/abstract=2815835 or http://dx.doi.org/10.2139/ssrn.2815835

Valentin Jouvanceau (Contact Author)

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE) ( email )

Lyon
France

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