Ec4024 2009 Lecture 17: The ECB and Investor Behaviour
THE ECB &
Financial Economics Lecture 17
Dr Stephen Kinsella
CDO/CDS/Rating Agencies, Subprime & Ireland
Securitization drove irresponsible investor behaviour
ECB’s behaviour changes investor behaviour.
Understanding this is crucial
Ireland, inc. through NTMA issued 3.7bn of bonds last week, all
went well. Great sign, see http://tinyurl.com/c3lawj
ECB Interest Rate Cut
FUNCTIONS OF THE ECB
Monetary Policy (OMO, Q. Easing, Mon. Easing. etc)
FUNCTIONS OF INVESTORS
Pension funds and ﬁnancial markets
Financial Markets as Information Provider for Central Banks
Financial Markets and the Transmission of Monetary Policy
What are they?
Why do they matter? Age/Dependency Ratio
Inﬂation & Nominal Values
Institutional Investors -> Deep, Liquid Markets
Tied to stock markets. Mkts fall, pension values do too.
Pensions are BIG business.
OECD Pensions: 20 Trillion in 2006.
The average growth rate of OECD private pension assets
between 2001 and 2007 was 9.4%.
USD 28 trillion in assets (111% of GDP on average) were
accumulated in pension funds (64% of the total),
Retirement savings accounts managed by banks or investment
companies (18% of the total),
Private pension insurance contracts (16% of the total),
More than 60% of the total OECD private pension assets
were held by the US system (USD 17 trillion). By October
2008, total OECD private pension assets were down to about
US 23 trillion, or about 90% of the OECD’s GDP.
OK, SO PENSIONS
ARE VERY BIG.
WHY DO THEY MATTER?
PENSIONS & MONETARY
• Pensionfunds are stable long-term investors with sophisticated
they play an important role in the shaping of the
• But: double edged sword
Nominal and real pension fund returns in OECD countries, January-October 2008
Structure of assets of pension funds in selected OECD
PENSIONS & IRISH FISCAL
• NPRS now used as slush fund, exactly what the experts told
us not to do (Lane, 2000, Honohan, 2000).
• Double Edged sword of Irish Pension funds
• BehaviouralFinance 1: CAPM and Reality. Reading: course
notes on site.