The Portfolio Rebalancing Channel of Quantitative Easing
GATE Working Paper series, WP 1625, 2016
36 Pages Posted: 30 Jul 2016
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: Suggested Citation