Impact of the ECB Quantitative Easing on the French International Investment Position

Abstract

This paper aims at estimating the impact of the recent Asset Purchase Programs implemented by the ECB – known as Quantitative easing (QE) – on external assets and liabilities recorded in one economy’s International Investment Position (IIP). Our analysis focused on the case of France. We start by describing the recent evolution of the four main items constituting the French IIP; namely Portfolio Investments, Other Investments, Derivatives and Direct Investments. We observe ample, albeit temporary, variations of these items surrounding QE programs. This analysis is complemented by an econometric approach in which we consider as QE variables both the announcements of the programs and their actual implementation. QE measures do impact all the items of the French IIP. Announcements – and particularly the one of January 2015 – play a stronger role compared to the amounts purchased. We also decompose changes in the IIP into flows and valuation effects and show that the latter is the most reactive to QE measures. Finally, we establish counterfactual scenarios to quantify what France’s IIP would have been in the absence of QE. The strong impact observed following the announcement of January 2015 is rapidly counterbalanced; which suggests an over-adjustment phenomenon at the beginning of the program. This analysis allows estimating the outcome of the policy on the net IIP and thus on international wealth transfer. Consistently with our previous findings, we observe a robust impact at the beginning of the program which is then partly offset.