Real Effects of the ECB's Quantitative Easing: A Housing Portfolio Channel

We propose a new housing portfolio channel of quantitative easing (QE) transmission. QE induces regional households to rebalance portfolios from bonds to houses, lowering bond and housing expected future returns, possibly stimulating consumption and output. We study this channel in a panel of all German administrative regions during a housing boom without a credit boom. Identification exploits regional variation in land scarcity. We estimate that a one-standard-deviation increase in QE raises GDP growth in the most exposed regions by 2-3 percentage points more than in the least exposed ones, cumulatively, during 2010-2017. Our channel accounts for at least 60% of the total QE impact on this growth differential, with other channels accounting for the remainder. To guide our empirical analysis and identification, we also set up a simple portfolio model with preferred habitat investing in local housing markets.