Impact of the ECB Quantitative Easing on the International Investment Position

Abstract

This paper aims at estimating the impact of Quantitative Easing (QE) implemented by the ECB on external assets and liabilities recorded in the International Investment Position (IIP). Indeed, monetary policy affects the prices of securities and exchange rates, as well as international capital flows. These movements affect the IIP and can trigger important global imbalances and financial stability issues. Our analysis focuses on France. We find that QE affected all the items composing its IIP. Announcements played a stronger role compared to amounts purchased. We also decompose changes in the IIP into flows and valuation effects and show that the latter was the most reactive to the programme. Finally, we quantify the overall effect by establishing counterfactual scenarios in the absence of QE. The strong impact observed initially was rapidly counterbalanced; suggesting an over-adjustment phenomenon at the beginning of the programme.