Search Results
Working Paper
Quantitative Easing and the Supply of Safe Assets: Evidence from International Bond Safety Premia
Through large-scale asset purchases, widely known as quantitative easing (QE), central banks around the world have affected the supply of safe assets by buying quasi-safe bonds in exchange for truly safe reserves. We examine the pricing effects of the European Central Bank’s bond purchases in the 2015-2021 period on an international panel of bond safety premia from four highly rated countries: Denmark, Germany, Sweden, and Switzerland. We find statistically significant negative effects for all four countries. This points to an important international spillover channel of QE programs to bond ...
Working Paper
Quantitative Easing, Bond Risk Premia and the Exchange Rate in a Small Open Economy
We assess the impact of simultaneous large-scale asset purchases, commonly known as quantitative easing (QE), conducted by Sveriges Riksbank and the European Central Bank (ECB) on bond risk premia in the Swedish government bond market. Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond-specific safety premia, we find that Sveriges Riksbank’s bond purchases raised inflation and short-rate expectations, lowered nominal and real term premia and inflation risk premia, and increased nominal bond safety premia, suggestive of signaling, ...
Journal Article
Central Bank Bond Purchases and the Price of Safety
Central banks purchase bonds and other securities with their own reserves. In doing so, they expand the supply of safe assets in the economy, which should lower the premium investors are willing to pay for safety. Analysis confirms that bond purchases by the European Central Bank in 2015–2021 lowered safety premiums for investors, partially offsetting declines in bond yields as much as 30 basis points. The results suggest that such transactions essentially reduce a central bank’s effectiveness in using asset purchases to lower interest rates in safe bond markets.