QE, Collateral Constraints, and Financial Spillovers

Principal Investigator(s):  View help for Principal Investigator(s) HAOBIN WANG, International Monetary Fund

Version:  View help for Version V1

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matlab-aej-10.3.zip application/zip 159.3 KB 10/03/2019 08:07:AM

Project Citation: 

WANG, HAOBIN. QE, Collateral Constraints, and Financial Spillovers. Nashville, TN: American Economic Association [publisher], 2020. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2020-09-28. https://doi.org/10.3886/E111576V1

Project Description

Summary:  View help for Summary The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic effects on international asset prices and capital flows. We rationalize these observations in a model in which a central bank buys domestic assets that serve as the best collateral for investors worldwide. The crucial insight is that domestic private agents adjust their portfolios of domestic and foreign assets in different ways to offset QE, conditional on whether they are (i) fully leveraged, (ii) partially leveraged or (iii) unleveraged. These portfolio shifts can diminish or even reverse the impact of ever-larger QE interventions on asset prices.

Scope of Project

Subject Terms:  View help for Subject Terms Quantitative easing; collateral; leverage; financial spillovers; emerging market
JEL Classification:  View help for JEL Classification
      D52 Incomplete Markets
      D53 General Equilibrium and Disequilibrium: Financial Markets
      E32 Business Fluctuations; Cycles
      E44 Financial Markets and the Macroeconomy
      E52 Monetary Policy
      F34 International Lending and Debt Problems
      F36 Financial Aspects of Economic Integration
      G01 Financial Crises
      G11 Portfolio Choice; Investment Decisions
      G12 Asset Pricing; Trading Volume; Bond Interest Rates
Data Type(s):  View help for Data Type(s) aggregate data; program source code; text


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V1 [2020-09-28]

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