Institutional investor portfolio allocation, quantitative easing and the global financial crisis

Michael Joyce, Zhuoshi Liu, Ian Tonks

Research output: Working paper / PreprintWorking paper

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We examine how the Bank of England’s quantitative easing (QE) policy during the global financial crisis affected the investment behaviour of insurance companies and pension funds and whether their behaviour was consistent with the operation of the so-called ‘portfolio balance channel’ that has been emphasised by UK and US monetary policy makers as a key channel through which QE works. To assess the incremental impact of QE, we need some counterfactual of how the investment behaviour of institutional investors would have changed in the absence of the policy. We construct this by conditioning on variables that explain portfolio allocation but are invariant to the QE policy itself, which allows us to construct both ex-ante and ex-post counterfactuals. Our analysis of a range of data sources, including national accounts net investment data and micro-data on life insurance companies and pension funds, suggests QE led to institutional investors shifting their portfolios away from gilts towards corporate bonds relative to the counterfactual. Although analysis of the micro-data does suggest some heterogeneity in the response to QE across different institutions, the shift into corporate bonds was quite widespread. However, portfolio rebalancing by institutional investors into riskier assets seems to have been limited to corporate bonds and did not extend to equities.
Original languageEnglish
PublisherBank of England
Number of pages49
Publication statusPublished - 12 Sept 2014

Publication series

NameBank of England Working Paper
PublisherBank of England
ISSN (Electronic)1749-9135


  • institutional investors
  • asset allocation
  • quantitative easing
  • portfolio balance channel
  • financial crisis


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