Spillovers From ECB QE – Global Yet Varied
(4 min read)
Central bank bond buying has accelerated at an unprecedented pace during the COVID crisis. The impact of large asset purchases on home markets is generally well understood, but the global spillovers are less clear. New research by the ECB, which for the first time uses data on an individual security level, provides a detailed insight into the impact of the first two years of the bank’s Public Sector Purchase Programme (PSPP) during 2015-16. Given the €6bn now purchased daily under the ECB’s new €750bn Pandemic Emergency Purchase Programme (PEPP) and the resumption of PSPP on an opened-ended basis late last year, the results are highly relevant for current capital flows and sectoral portfolio shifts.
Moving Past BoP Flows
Balance of payments data for the Euro-area very clearly show significant capital outflows as a result of the PSPP, first initiated in March 2015 (Chart 1). These flows peaked at 5% of Euro-area GDP in mid-2016, and the stock of assets now stands at €2.2tn.
Earlier studies showed that quantitative easing (QE) reduced long-term yields of eligible assets, as well as other debt securities, while simultaneously supporting equity markets both across the EU and globally.
By using detailed data by geography and security, ECB staff add to these findings to show that net selling of PSPP assets was uneven across countries and sectors. For example, insurance companies and pension funds showed larger shifts into longer-term assets, and stressed Euro-area economies were larger net sellers given greater scope for capital appreciation. The research also backed up earlier findings that ECB QE did not benefit emerging markets, with other advanced economies being the main beneficiaries.
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