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  3. American Economic Journal: Macroeconomics
  4. October 2020
  5. Quantitative Easing, Collateral Constraints, and Financial Spillovers

Quantitative Easing, Collateral Constraints, and Financial Spillovers

  • John Geanakoplos
  • Haobin Wang
American Economic Journal: Macroeconomics
vol. 12, no. 4, October 2020
(pp. 180-217)
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Abstract

The steady application of quantitative easing (QE) has been followed by big and nonmonotonic effects on international asset prices and capital flows. We rationalize these observations in a model in which a central bank buys domestic assets that serve as the best collateral for investors worldwide. The crucial insight is that domestic private agents adjust their portfolios of domestic and foreign assets in different ways to offset QE, conditional on whether they are (i) fully leveraged, (ii) partially leveraged, or (iii) unleveraged. These portfolio shifts can diminish or even reverse the impact of ever-larger QE interventions on asset prices.

Citation

Geanakoplos, John, and Haobin Wang. 2020. "Quantitative Easing, Collateral Constraints, and Financial Spillovers." American Economic Journal: Macroeconomics, 12 (4): 180-217. DOI: 10.1257/mac.20180484

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E44 Financial Markets and the Macroeconomy
  • E52 Monetary Policy
  • E58 Central Banks and Their Policies
  • F34 International Lending and Debt Problems
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