Quantitative Easing and Financial (In)Stability

Many central banks have introduced quantitative easing (QE) as a new policy tool where they massively buy bonds from market participants to provide liquidity to the market, reduce the cost of capital and ultimately foster economic growth. Although such monetary policy measures by the Federal Reserve and the Bank of Japan seem to have had the desired effect in the home market, there are still many open questions about the effectiveness of QE with respect to its global impact. These policies (and unwinding them later on) have an impact on the stability of financial markets and financial institutions, not only in industrialized countries but also in emerging markets.

This project aims to analyze the potential effects of QE, in particular on the pricing of financial assets, the risk taking by banks, and the spillover effects to emerging markets. The project proposes a new approach to address the topic from a banking and finance perspective.

Key questions:

  • How much of the current recovery can actually be attributed to monetary policy intervention, and, in particular, which tool was the most effective?
  • What are the consequences of the enormous monetary expansion for financial markets stability? How does it affect risk-taking by banks, and systemic risk more generally? Are there spillover effects to financial institutions and markets in emerging economies, like India, China, or some African countries?
  • If some day central banks want to reverse their current extremely lax policy stance, what will happen to securities markets and the banking system? Which withdrawal symptoms should we expect, in terms of negative economic growth and financial instability around the world?

Project Team

Junior Researchers
Marius Birk
Vanessa Endrejat
Jun Li (till 06/18)
Xu Liu
Max Nagel
Mihaela Simina Puscasu
Christian Resch
Junior Researchers
Max Riedel
Michael Schmidt
Davide Tomio
Senior Researchers
Marcel Bluhm (till 05/17)
Linlin Niu
Junior Researchers
Xiao Cai 
Zhiwu Hong (till 07/17)
Zhen Huang (till 09/16)
Mucai Lin
Pengli Ni
Rina Su
Siqi Wang
Senior Researchers
Co-Pierre Georg
Junior Researchers
Tina Koziol
Allan Davids
Jesslyn Jonathan
Senior Researchers
Jun Uno
Junior Researchers
Reiko Tobe

Closing Conference

The final conference of "Quantitative Easing and Financial (In)Stability" funded by Volkswagen Foundation took place on 1 April 2019 at Goethe University Frankfurt.

The agenda and presentations can be found here, a summary of the event can be found here.

News & Activities

Project Publications

Working Paper

Author/s Title Program Area
Loriana Pelizzon, Marti Subrahmanyam, Davide Tomio, Jun Uno Central Bank-Driven Mispricing Financial Markets, Macro Finance, Systemic Risk Lab
Viral Acharya, Diane Pierret, Sascha Steffen, Lender of Last Resort, Buyer of Last Resort, and a Fear of Fire Sales in the Sovereign Bond Market Financial Markets, Macro Finance
Loriana Pelizzon, Max Riedel, Zorka Simon, Marti Subrahmanyam Collateral Eligibility of Corporate Debt in the Eurosystem Financial Markets, Macro Finance, Systemic Risk Lab
Matthias Max Nagel, Matthias Thiemann Shifting Frames of the Expert Debate: Quantitative Easing, International Macro-Finance and the Potential Impact of Post-Keynesian Scholarship Financial Markets, Macro Finance
Zhiwu Hong, LinLin Niu, An Arbitrage-Free Yield Net Model with Application to the Euro Debt Crisis Financial Markets, Macro Finance
Loriana Pelizzon, Marti Subrahmanyam, Reiko Tobe, Jun Uno Scarcity and Spotlight Effects on Liquidity and Yield: Quantitative Easing in Japan Macro Finance, Financial Markets, Systemic Risk Lab
Tina Koziol, Jesper Riedler, Joeri Schasfoort, Euro Area Quantitative Easing in a Portfolio Balance Model with Heterogeneous Agents and Assets Financial Markets, Macro Finance
Allan Davids, Co-Pierre Georg The Cape of Good Homes: Exchange Rate Depreciations, Foreign Demand and House Prices Financial Markets, Macro Finance
Puriya Abbassi, Michael Schmidt, Financial Stability Effect of Yield-Oriented Investment Behaviour Financial Markets, Macro Finance
Mucai Lin, LinLin Niu, Echo over the Great Wall: Spillover Effects of QE Announcements on Chinese Yield Curve Financial Markets, Macro Finance
Tina Koziol, Fire-Sale Externalities in the South African Banking Sector Financial Markets
Loriana Pelizzon, Max Riedel, Zorka Simon, Marti Subrahmanyam Collateral Eligibility of Corporate Debt in the Eurosystem Financial Markets, Macro Finance, Systemic Risk Lab
Massimiliano Caporin, Loriana Pelizzon, Alberto Plazzi, Does Monetary Policy Impact International Market Co-Movements? Financial Markets, Macro Finance

Research Projects

QE impact on financial markets ...

... in industrialized countries

... in emerging countries

QE impact on financial institutions ...

... in industrialized countries

... in emerging countries