Real Effects of the ECB's Quantitative Easing: A Housing Portfolio Channel

38 Pages Posted: 19 Mar 2021

See all articles by Daniel te Kaat

Daniel te Kaat

University of Groningen

Chang Ma

Fudan University - Fanhai International School of Finance (FISF)

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: February 9, 2021

Abstract

We propose a new channel of transmission through which central bank quantitative easing (QE) can affect local economic activity. In our model, in response to a QE intervention, a national financial intermediary responds by rebalancing its portfolio from bonds to housing. As a result, house prices increase, and the total portfolio return declines, boosting the economy by stimulating current consumption; the shorter the local housing supply, the stronger the consumption effects. We then investigate this channel empirically by employing German region-level data. Identification exploits the exogenous variation in land supply scarcity across regions to construct a measure of exposure to this housing channel. In line with the transmission in the model, we find that the QE impact on GDP growth is more potent in regions with tighter land supply. We estimate that a one-standard-deviation increase in the size of the ECB’s balance sheet raises GDP growth in the most exposed areas by 10-20 basis points more per year than in the least exposed ones. The differential response of residential property prices and rents to QE can account for this regional growth differential. The significance of the QE impact on growth disappears once we control for the government bond term spread, but survives when we condition on mortgage credit.

Keywords: Unconventional Monetary Policy, Housing Portfolio Channel, EONIA, Quantitative Easing, Regional Business Cycles, Germany, Real Estate

JEL Classification: E3, E4, E5, R3

Suggested Citation

te Kaat, Daniel and Ma, Chang and Rebucci, Alessandro, Real Effects of the ECB's Quantitative Easing: A Housing Portfolio Channel (February 9, 2021). Available at SSRN: https://ssrn.com/abstract=3782131 or http://dx.doi.org/10.2139/ssrn.3782131

Daniel Te Kaat

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Chang Ma (Contact Author)

Fudan University - Fanhai International School of Finance (FISF) ( email )

China

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
21
Abstract Views
167
PlumX Metrics