Quantitative Easing and the Safe Asset Illusion
Series
School of Finance Working Paper
Type
working paper
Date Issued
2021-06-09
Author(s)
Abstract
The massive recourse to quantitative easing (QE) calls for a better
understanding of its effects on safe assets. Based on a simple balance sheet framework, we show how QE impacts the total amount, cross-sectional distribution, and composition of safe assets in the economy. Analyzing the ECB's Public Sector Purchase Programme (PSPP), we find that the amount of universally accessible safe assets decreases and there is a transfer of safe assets from the non-bank to the banking sector. We call this phenomenon the safe asset illusion. The sectoral shift in the holding structure of safe assets has important implications for financial stability and the cost of secured liquidity.
understanding of its effects on safe assets. Based on a simple balance sheet framework, we show how QE impacts the total amount, cross-sectional distribution, and composition of safe assets in the economy. Analyzing the ECB's Public Sector Purchase Programme (PSPP), we find that the amount of universally accessible safe assets decreases and there is a transfer of safe assets from the non-bank to the banking sector. We call this phenomenon the safe asset illusion. The sectoral shift in the holding structure of safe assets has important implications for financial stability and the cost of secured liquidity.
Language
English
Keywords
Safe assets
quantitative easing
Public Sector Purchase Programme
secured deposits
repurchase agreements
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Publisher
SoF HSG
Volume
2021
Number
10
Pages
51
Subject(s)
Eprints ID
263312
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21_10_Bechtel_Eisenschmidt_Ranaldo_Ventula Veghazy_Quantitative Easing and the Safe Asset Illusion_.pdf
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