Or, even if investors do not differ greatly in their attitudes toward duration risk, they may require lower compensation for holding duration risk when they have smaller amounts of it in their portfolios.” [25] Vayanos, D. and Vila, J. (2009), “A preferred-habitat model of the term structure of interest rates”, NBER Working Paper, No 15487. [26] For the euro area, flow effects are found to be small, yet sometimes significant, see, e.g., the overview in Arrata, W. and Nguyen, B. (2017), “Price impact of bond supply shocks: Evidence from the Eurosystem’s asset purchase program”, Banque de France Working Paper, No 623; as well as De Santis, R. and Holm-Hadulla, F. (2017), “Flow effects of central bank asset purchases on euro area sovereign bond yields: evidence from a natural experiment”, Working Paper Series, No 2052, ECB; or Schlepper, K., Ryordan, R., Hofer, H., and Schrimpf, A. (2017), “Scarcity effects of QE: a transaction-level analysis in the Bund market”, Deutsche Bundesbank Discussion Paper, 06/2017. [27] For quantifying the yield curve impact via the duration channel in the United States and the euro area, see respectively Li, C. and Wei, M. (2013), “Term structure modelling with supply factors and the Federal Reserve’s large-scale asset purchase programs”, International Journal of Central Banking, 9(1), pp. 3–39; and Eser, F., Lemke, W., Nyholm, K., Radde, S. and Vladu, A. (2019), “Tracing the impact of the ECB’s asset purchase programme on the yield curve”, Working Paper Series, No 2293, ECB. [28] See, e.g., Hammermann, F., Leonard, K., Nardelli, S. and von Landesberger, J.

Chart 6 Estimated effect of quantitative easing surprise on the OIS curve (basis points)  Sources: Based on Altavilla et al. (forthcoming). Notes: Surprise impact normalised to 10 basis points for the ten-year maturity. The academic literature distinguishes broadly between two channels through which this policy works: signalling and portfolio rebalancing. [19] Under the signalling channel, central bank asset purchases serve as a commitment device to keep policy rates at low levels for an extended period of time. Under the portfolio rebalancing channel, the central bank’s withdrawal of net bond supply from the market induces investors to reshuffle their portfolios, and these changes in demand-supply constellations affect bond prices and yields. Under the signalling channel, the expectations component of bond yields decreases upon news about asset purchases, whereas under the portfolio rebalancing channel, the term premium component is compressed. The expectations and the term premium components cannot be observed separately. Econometric modelling is required to discriminate between the two components and provide a deeper understanding of the transmission channels of asset purchases. An important episode studied by ECB researchers is the period before the announcement of the APP in January 2015. Between summer 2014 and the official announcement, some events reinforced the view of market participants that ECB government bond purchases were likely to start in the near future. The events examined by ECB staff occurred between the Governing Council meetings on 3 September 2014 and 22 January 2015, the day when the ECB announced the APP.