The Portfolio Rebalancing Effects of the ECB's Asset Purchase Programme

Abstract

We explore the transmission of the ECB's Public Sector Asset Purchase Programme (PSPP) via portfolio rebalancing of investment funds and their investors. Using dynamic panel methods, we find that PSPP-holding funds rebalance towards bonds of non-EA banks and away from maturities targeted for purchase. Other fund types rebalance into assets with longer durations and towards non-EA bonds issued by both non-financial corporations and sovereigns. Significant effects appear after the scaling-up of the program. There is no evidence of rebalancing towards European equities. The pattern of rebalancing over the period examined reflects a reluctance to increase exposures to liabilities of EA banks and corporates.