Working Paper: The Portfolio Balance Channel of Quantitative Easing in a DSGE Model with Financial Frictions

Working Paper - June 2021 - No. 180

Authors Nelson, Genevieve (Danmarks Nationalbank)
Subject Monetary policy; Monetary-policy instrument
Type Working paper
Year 2021
Published 28 June 2021
Abstract icon Investors who arbitrage between long term government debt and corporate debt expand the Portfolio Balance Channel in that the effects of Quantitative Easing (QE) spill over to the overall cost of corporate borrowing. I find that overall the Federal Reserve’s second round of QE boosts output between 0.5 - 1.7%.