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Johannes Breckenfelder
Research
- Division
Financial Research
- Current Position
-
Senior Economist
- Fields of interest
-
Financial Economics,Macroeconomics and Monetary Economics
- Education
- 2014
PhD in Finance, Stockholm School of Economics, Sweden
- Professional experience
- 2020-
Senior Economist - Financial Research Division, Directorate General Research, European Central Bank
- 2014-2019
Economist - Financial Research Division, Directorate General Research, European Central Bank
- 27 June 2024
- RESEARCH BULLETIN - No. 120Details
- Abstract
- Large-scale asset purchases can impact the price of securities either directly, when securities are targeted by the central bank, or indirectly through portfolio rebalancing by private investors. We quantify both the direct impact and that of portfolio rebalancing, emphasising the role of investor heterogeneity. We use proprietary security-level data on asset holdings of different investors. We measure the direct impact at security level, finding that it is smaller for securities predominantly held by more price-elastic investors, i.e. funds and banks. Comparing securities at the 90th and 10th percentile of the investor elasticity distribution, the price impact of central bank purchases on the securities held by more price-elastic investors is only two-thirds as large. To assess the portfolio rebalancing effects, we construct a novel shift-share instrument. With this, we measure investors’ quasi-exogenous exposure to central bank purchases, based on their holdings of eligible securities before the quantitative easing (QE) programme was announced. We show that funds and banks sell eligible securities to the central bank and rebalance their portfolios towards ineligible securities, with those investors more exposed to central bank purchases ex ante engaging in more rebalancing. Using detailed holdings data for mutual funds, we estimate that for each euro of proceeds from selling securities to the central bank, the average fund allocates 88 cents to ineligible assets and 12 cents to other eligible assets that the central bank did not buy in that time period. The price of ineligible securities held by more exposed funds increases compared with those held by less exposed funds, underscoring the fact that the portfolio rebalancing channel is at work.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 8 May 2024
- WORKING PAPER SERIES - No. 2938Details
- Abstract
- 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 quantify both the direct and the portfolio re-balancing impact, emphasizing the role of investor heterogeneity. We use proprietary security-level data on asset holdings of different investors. We measure the direct impact on security level, finding that it is smaller for securities predominantly held by more price-elastic investors, funds and banks. Comparing a security at the 90th percentile of the investor elasticity distribution to a security at the 10th percentile, the price impact is only two-thirds as large. To assess the portfolio re-balancing effects, we construct a novel shift-share instrument to measure investors’ quasi-exogenous exposure to central bank purchases, based on investors’ holdings of eligible securities before the QE program was announced. We show that funds and banks sell eligible securities to the central bank and re-balance their portfolios towards ineligible securities, with investors ex-ante more exposed to central bank purchases re-balancing more. Using detailed holdings data of mutual funds, we estimate that for each euro sold to the central bank, the average fund allocates 88 cents to ineligible assets and 12 cents to other eligible assets that the central bank does not buy in that time period. The price of ineligible securities held by more exposed funds increases compared to those held by less exposed funds, underscoring the portfolio re-balancing channel at work.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 14 November 2023
- WORKING PAPER SERIES - No. 2874Details
- Abstract
- Using security-by-security data on investor holdings in the euro area, we study run dynamics across different fund-shares of the same fund during the unprecedented liquidity crisis in March 2020. For an average bond or equity mutual fund-share, households, other euro area funds, and the foreign sector each represent about a quarter of the total holdings. Insurance companies hold another 14%, with all other investors combined (banks, non-financial corporations, pension funds, etc.) accounting for less than 10% of holdings. Analyzing bond funds, we show that fund-shares with higher ownership by other funds suffered substantially higher outflows (by 6 percentage points), while fund-shares with higher ownership by households had substantially lower outflows (by 5 percentage points) compared to the other fund-shares within the same fund. This gap is not driven by time-varying differences in fund performance. Results for equity funds are similar, although they faced substantially smaller outflows, coupled with much larger declines in performance, compared to bond funds. Our findings suggest that a collective “dash for cash” by consumers and firms in need of liquidity at the outset of the COVID-19 pandemic was not the source of mutual fund fragility. Instead, the most run-prone investor type turned out to be the fund sector itself.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G10 : Financial Economics→General Financial Markets→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 22 June 2023
- RESEARCH BULLETIN - No. 108Details
- Abstract
- Are central bank tools effective in reaching non-banks with no access to the lender of last resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale asset purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared with other banks.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G10 : Financial Economics→General Financial Markets→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 13 April 2023
- WORKING PAPER SERIES - No. 2805Details
- Abstract
- Are central bank tools effective in reaching non-banks with no access to the lender-of-last-resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared to other banks.
- JEL Code
- E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G10 : Financial Economics→General Financial Markets→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 7 March 2023
- WORKING PAPER SERIES - No. 2793Details
- Abstract
- Climate change and the public policies to arrest it are and will continue reshaping the global economy. This Discussion Paper draws on economic research to identify some key medium- and long-run economic implications of these developments. It explores implications for growth, innovation, inflation, financial markets, fiscal policy, and several socio-economic outcomes. The main message that emerges is that climate change will cause income divergence across individuals, sectors, and regions, adjustment in energy markets, increased inflation variability, financial markets stress, intensified innovation, increased migration, and rising public debt. These challenges appear manageable for EU member states, especially under an early and orderly transition scenario. At the same time, the direction, scope, and speed of economic transformation is subject to large uncertainty due to two separate factors: the wide range of climate scenarios for a given trajectory of greenhouse gas emissions and the exact policy path governments choose, especially in the context of the ongoing Russian aggression in Ukraine.
- JEL Code
- D6 : Microeconomics→Welfare Economics
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
F2 : International Economics→International Factor Movements and International Business
G2 : Financial Economics→Financial Institutions and Services
O1 : Economic Development, Technological Change, and Growth→Economic Development
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics - Network
- Discussion papers
- 7 March 2023
- DISCUSSION PAPER SERIES - No. 22Details
- Abstract
- Climate change and the public policies to arrest it are and will continue reshaping the global economy. This Discussion Paper draws on economic research to identify some key medium- and long-run economic implications of these developments. It explores implications for growth, innovation, inflation, financial markets, fiscal policy, and several socio-economic outcomes. The main message that emerges is that climate change will cause income divergence across individuals, sectors, and regions, adjustment in energy markets, increased inflation variability, financial markets stress, intensified innovation, increased migration, and rising public debt. These challenges appear manageable for EU member states, especially under an early and orderly transition scenario. At the same time, the direction, scope, and speed of economic transformation is subject to large uncertainty due to two separate factors: the wide range of climate scenarios for a given trajectory of greenhouse gas emissions and the exact policy path governments choose, especially in the context of the ongoing Russian aggression in Ukraine.
- JEL Code
- D6 : Microeconomics→Welfare Economics
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
F2 : International Economics→International Factor Movements and International Business
G2 : Financial Economics→Financial Institutions and Services
O1 : Economic Development, Technological Change, and Growth→Economic Development
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
- 15 November 2022
- THE ECB BLOGRelated
- 9 November 2022
- THE ECB BLOG
- 2 November 2022
- THE ECB BLOG
- 7 November 2022
- THE ECB BLOG
- 18 November 2022
- THE ECB BLOG
- 26 July 2022
- WORKING PAPER SERIES - No. 2686Details
- Abstract
- Fulfilling the commitments embedded in the Paris Agreement requires a climate-technologyrevolution. Patented innovation of low-carbon technologies is lower in the EU than in selectedpeers, and very heterogeneous across member states. We motivate this fact with anendogenous model of directed technical change with government policy and financialmarkets. Variations in carbon taxes, R&D investment, and venture capital investment explaina large share of the variation in green patents per capita in the data. We discuss implicationsfor policy, concluding that governments can play a catalytic role in stimulating greeninnovation while the role of central banks is limited.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 : Financial Economics→General Financial Markets
O4 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics - Network
- Discussion papers
- 26 July 2022
- DISCUSSION PAPER SERIES - No. 19Details
- Abstract
- Fulfilling the commitments embedded in the Paris Agreement requires a climate-technologyrevolution. Patented innovation of low-carbon technologies is lower in the EU than in selectedpeers, and very heterogeneous across member states. We motivate this fact with anendogenous model of directed technical change with government policy and financialmarkets. Variations in carbon taxes, R&D investment, and venture capital investment explaina large share of the variation in green patents per capita in the data. We discuss implicationsfor policy, concluding that governments can play a catalytic role in stimulating greeninnovation while the role of central banks is limited.
- JEL Code
- E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 : Financial Economics→General Financial Markets
O4 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity
Q5 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics
- 24 November 2021
- RESEARCH BULLETIN - No. 89Details
- Abstract
- The outbreak of the coronavirus (COVID-19) pandemic led to heightened uncertainty and a “dash-for-cash” in March 2020. Investors moved out of risky assets and into safe assets. The mutual fund sector in particular was hit by unprecedented investor redemptions and faced fire sale pressure as a result. Typically, banks that engage in securities trading – dealer banks – absorb such bond sales, supporting market liquidity, but regulation may limit their ability to do so by requiring them to maintain a certain leverage ratio. In recent research, we analyse the role of bank leverage constraints as an amplifier of bond market illiquidity during the March 2020 crisis. Our analysis links mutual funds bond holdings to dealer banks and their leverage constraints. We document that mutual funds that were holding more bonds exposed to dealer bank constraints in their portfolio faced bigger selling pressure in March 2020. We provide supplementary evidence that bank leverage constraints affect bond liquidity, using the introduction of leverage ratio regulation in the euro area.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 23 September 2021
- WORKING PAPER SERIES - No. 2589Details
- Abstract
- We explore the ties between bonds and individual dealers formed through home advantage and the persistence of previous underwriting relationships. Building on these connections, we show that the introduction of the leverage ratio for the European banks had a large impact on exposed bonds’ liquidity. Moreover, based on these ties, we show that bond mutual fund panic following the 2020 pandemic outbreak affected substantially more mutual funds with the larger exposures to dealer banks’ balance sheet constraints.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 15 December 2020
- RESEARCH BULLETIN - No. 78Details
- Abstract
- When high-frequency trading firms compete, does stock market liquidity deteriorate? I argue that the answer is yes. High-frequency trading competition may impact stock market liquidity via two channels. First, more competition is accompanied by more high-frequency trading and larger trading volumes, which improve market liquidity. Second, more competition may mean that high-frequency traders adapt their trading strategies and engage in more speculative trades, which harms market liquidity. Since these two channels have the opposite effects on market liquidity, it is important to disentangle the effects of competition from those of a mere increase in the number/volume of high-frequency trading transactions. In the analysis, I aim to do precisely this, by using an exogenous event which changed the intensity of high-frequency competition for some stocks but not for others. I find that otherwise similar stocks subject to more high-frequency trading competition become less liquid.
- JEL Code
- G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
D4 : Microeconomics→Market Structure and Pricing
- 11 June 2019
- WORKING PAPER SERIES - No. 2290Details
- Abstract
- We study empirically how competition among high-frequency traders (HFTs) affects their trading behavior and market quality. Our analysis exploits a unique dataset, which allows us to compare environments with and without high-frequency competition, and contains an exogenous event - a tick size reform - which we use to disentangle the effects of the rising share of high-frequency trading in the market from the effects of high-frequency competition. We find that when HFTs compete, their speculative trading increases. As a result, market liquidity deteriorates and short-term volatility rises. Our findings hold for a variety of market quality and high-frequency trading behavior measures.
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading
G15 : Financial Economics→General Financial Markets→International Financial Markets
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
D4 : Microeconomics→Market Structure and Pricing
D61 : Microeconomics→Welfare Economics→Allocative Efficiency, Cost?Benefit Analysis
- 18 December 2018
- RESEARCH BULLETIN - No. 53Details
- Abstract
- When a country sees its sovereign credit risk rise, do companies in that country also see their credit risk increase? We show that the answer is yes. Companies with a large public-sector ownership, as well as companies that borrow heavily from banks, are most affected. This suggests that the transmission of credit risk from sovereigns to non-financial companies occurs primarily through a fiscal and a financial channel, and points to the importance of reducing such risk spillovers and thereby overall risk in the economy, e.g. by means of the capital markets union.
- JEL Code
- F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 6 November 2018
- WORKING PAPER SERIES - No. 2193Details
- Abstract
- We study spillovers from bank to sovereign risk in the euro area using difference specifications around the European Central Bank’s release of stress test results for 130 significant banks on October 26, 2014. We document that following this information release bank equity prices in stressed countries declined. Surprisingly, bank risk in stressed countries was not absorbed by their sovereigns but spilled over to non-stressed euro area sovereigns. As a result, in non-stressed countries, the co-movement between sovereign and bank risk increased. This suggests that market participants perceived that bank risk is shared within the euro area.
- JEL Code
- C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
F34 : International Economics→International Finance→International Lending and Debt Problems
- 9 September 2016
- DISCUSSION PAPER SERIES - No. 1Details
- Abstract
- This paper analyses the effects of the European Central Bank’s expanded asset purchase programme (APP) on yields and on the macroeconomy, and sheds some light on its trans-mission channels. It shows, first, that the January 2015 announcement of the programme has significantly and persistently reduced sovereign yields on long-term bonds and raised the share prices of banks that held more sovereign bonds in their portfolios. This evidence is consistent with versions of the portfolio rebalancing channel acting through the removal of duration risk and the relaxation of leverage constraints for financial intermediaries. It then presents a stylised macroeconomic model that incorporates the aforementioned trans-mission channels. The model suggests that the macroeconomic impact of the programme can be expected to be sizable.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 9 September 2016
- WORKING PAPER SERIES - No. 1956Details
- Abstract
- This paper analyses the effects of the European Central Bank's expanded asset purchase programme (APP) on yields and on the macroeconomy, and sheds some light on its transmission channels. It shows, first, that the January 2015 announcement of the programme has significantly and persistently reduced sovereign yields on long-term bonds and raised the share prices of banks that held more sovereign bonds in their portfolios. This evidence is consistent with versions of the portfolio rebalancing channel acting through the removal of duration risk and the relaxation of leverage constraints for financial intermediaries. It then presents a stylised macroeconomic model that incorporates the aforementioned transmission channels. The model suggests that the macroeconomic impact of the programme can be expected to be sizable.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates - Network
- Discussion papers
- 18 January 2016
- WORKING PAPER SERIES - No. 1878Details
- Abstract
- The first Greek bailout on April 11, 2010 triggered a significant reevaluation of sovereign credit risk across Europe. We exploit this event to examine the transmission of sovereign to corporate credit risk. A ten percent increase in sovereign credit risk raises corporate credit risk on average by 1.1 percent after the bailout. The evidence is suggestive of risk spillovers from sovereign to corporate credit risk through a financial and a fiscal channel, as the effects are more pronounced for firms that are bank or government dependent. We find no support for indirect risk transmission through a deterioration of macroeconomic fundamentals.
- JEL Code
- F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
- 2018
- Journal of Empirical Finance
- 2018
- Journal of Money, Credit and Banking