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Real Implications of Quantitative Easing in the Euro Area: A Complex-Network Perspective


Perillo, Chiara; Battiston, Stefano (2017). Real Implications of Quantitative Easing in the Euro Area: A Complex-Network Perspective. In: Cherifi, Chantal. Complex Networks & Their Applications VI - Studies in Computational Intelligence. Berlin: Springer, 1162-1173.

Abstract

The long-lasting socio-economic impact of the global financial crisis has questioned the adequacy of traditional tools in explaining periods of financial distress as well as the adequacy of the existing policy response. In particular, the effect of complex interconnections among financial institutions on financial stability has been widely recognized. A recent debate focused on the effects of unconventional policies aimed at achieving both price and financial stability. In particular, Quantitative Easing (QE, i.e., the large-scale asset purchase programme conducted by a central bank upon the creation of new money) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent, by injecting liquidity, the QE may alter the bank-firm lending level and stimulate the real economy. Second, to what extent, the QE may also alter the pattern of intra-financial exposures among financial actors (including banks, investment funds, insurance corporations and pension funds) and what are the implications in terms of financial stability. Here, we address these two questions by developing a methodology to map the macro-network of financial exposures among institutional sectors across financial instruments (i.e., equity, bonds and loans) and we illustrate our approach on recently available data (i.e., data on loans and private and public securities purchased within the QE). We then test the effect of the implementation of ECB’s QE on the time evolution of the financial linkages in the macro-network of the euro area as well as the effect on macroeconomic variables, such as output and prices.

Abstract

The long-lasting socio-economic impact of the global financial crisis has questioned the adequacy of traditional tools in explaining periods of financial distress as well as the adequacy of the existing policy response. In particular, the effect of complex interconnections among financial institutions on financial stability has been widely recognized. A recent debate focused on the effects of unconventional policies aimed at achieving both price and financial stability. In particular, Quantitative Easing (QE, i.e., the large-scale asset purchase programme conducted by a central bank upon the creation of new money) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent, by injecting liquidity, the QE may alter the bank-firm lending level and stimulate the real economy. Second, to what extent, the QE may also alter the pattern of intra-financial exposures among financial actors (including banks, investment funds, insurance corporations and pension funds) and what are the implications in terms of financial stability. Here, we address these two questions by developing a methodology to map the macro-network of financial exposures among institutional sectors across financial instruments (i.e., equity, bonds and loans) and we illustrate our approach on recently available data (i.e., data on loans and private and public securities purchased within the QE). We then test the effect of the implementation of ECB’s QE on the time evolution of the financial linkages in the macro-network of the euro area as well as the effect on macroeconomic variables, such as output and prices.

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Additional indexing

Item Type:Book Section, not_refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:December 2017
Deposited On:12 Mar 2019 15:53
Last Modified:12 Mar 2019 15:55
Publisher:Springer
ISBN:978-3-319-72149-1
OA Status:Closed
Publisher DOI:https://doi.org/10.1007/978-3-319-72150-7_94
Other Identification Number:merlin-id:15830

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