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The ‘Visible Hand’ of the ECB’s Quantitative Easing. CEPS Working Document No. 407/May 2015

Valiante, Diego. (2015) The ‘Visible Hand’ of the ECB’s Quantitative Easing. CEPS Working Document No. 407/May 2015. [Working Paper]

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    Quantitative easing à la ECB has produced so far an impact on long-term nominal rates through ex ante channels: signalling channels, term duration channels, and risk premia channels. The term duration channel will also lead to a lengthening of the average maturity of government debts, with possible implications for fiscal policy. The ECB’s determination to buy government bonds in a fragmented market with a low net supply may also produce an ex post impact, during the actual asset purchases, but less on nominal rates and more on financial plumbing, as recent volatility suggests. As the effects of scarce supply in collateral markets are felt, repo rates remain well below zero. Lower supply and limited re-usability of high quality collateral, capped by regulatory requirements, is a constraint on market liquidity and compresses dealers’ balance sheets. By keeping a depressed yield curve and asset prices high, QE may also accelerate the consolidation of both traditional and capital-market based (dealer) bank business models. What is less clear is how these changing business models will interact with the sharp rise of the asset management industry in the aftermath of the crisis, which raises questions about the implications for global collateral flows and deposit-like funding channels.

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    Item Type: Working Paper
    Uncontrolled Keywords: Quantitative easing, risk premium, forward guidance, collateral markets, asset management.
    Subjects for non-EU documents: EU policies and themes > EU institutions & developments > European Central Bank
    EU policies and themes > Policies & related activities > economic and financial affairs > fiscal policy
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 26 May 2015 10:52
    Number of Pages: 18
    Last Modified: 26 May 2015 10:52

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