“Investor Heterogeneity and Large-Scale Asset Purchases”, with Johannes Breckenfelder

Large-Scale Asset Purchases can impact the price of securities directly, when securities are targeted by the central bank, or indirectly through portfolio re-balancing of private investors. We show that investor heterogeneity is pivotal for both direct and indirect effects of central bank purchases. Using security-level holdings data for the euro area, we find that the direct effects of central bank purchases by the European Central Bank on prices are smaller for securities predominantly held by more price elastic investors. When sorting securities on how price elastic is their investor base, we find that the direct effects of central bank purchases for a security at the 90th percentile of the investor elasticity distribution are two-thirds as large as for a security at the 10th percentile. To gauge the indirect effects, we construct a shift-share instrument to measure mutual funds' quasi-exogenous exposure to central bank purchases. The instrument is based on funds’ holdings of securities eligible for purchases before central bank purchases were announced and realized purchases. On average, a mutual fund sells eligible securities worth 0.5% of its total portfolio holdings. However, there is substantial heterogeneity among funds, with those holding portfolios more exposed to central bank purchases re-balancing more towards ineligible securities. The price of ineligible securities, held by more exposed funds, increases compared to those held by less exposed funds.


“Supranational Bonds: Crowding In or Crowding Out?”, with Johannes Breckenfelder and Marie Hoerova

How do supranational bonds impact national sovereign bonds? The extent of this impact depends on whether private investors perceive supranational and national sovereign bonds to be substitutes or complements. In 2020, the EU Commission issued, for the first time and in large amounts, supranational bonds under the Next Gen EU program to support countries’ economic recovery from the Covid-19 pandemic. We use security-level portfolio holdings data from mutual funds and construct a shift-share instrument based on the heterogeneity of sovereign bond holdings across funds. We leverage this variation to study how investors adjust their portfolios and how the yields of national bonds are influenced by EU bond issuance.

“Import Prices and Domestic Inflation”

The 2021–2023 inflation surge was characterized by inflation rising in many countries simultaneously due to a mix of, domestic and foreign, supply and demand factors. I investigate the impact of an increase in import prices on domestic inflation. I use monthly bilateral trade data by country-industry for which both the quantity and prices of imported goods are reported at the 4- digits commodity level. I propose a shift-share Bartik-style instrument to estimate the elasticity of domestic inflation to import prices. The quasi-exogenous variation is based on exposure to global import prices of products across countries. Preliminary results show that a 1% increase in import prices increases domestic inflation by 6-10 basis points.