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

In its efforts to loosen monetary conditions in March 2009 in response to the effects of the deepening financial crisis on the inflation outlook, the Bank of England's Monetary Policy Committee reduced policy rates to their effective lower bound of 0.5% and began a programme of large-scale purchases of financial assets financed through the creation of central bank reserves, so-called quantitative easing (QE). While the objectives of the QE policy were clear, there has been more debate over how the policy was expected to work. The authors examine the behaviour of institutional investors, ie insurance companies (particularly life companies) and pension funds, both before and during the crisis and whether their portfolio allocation behaviour is consistent with portfolio balance effects.