The massive recourse to quantitative easing (QE) calls for a better understanding of its effects on safe assets. Based on a simple balance sheet framework, we show how QE impacts the total amount, cross-sectional distribution, and composition of safe assets in the economy. Analyzing the ECB’s...

The credit risk of the sovereign affects the financial health of its banking sector and vice versa, creating an adverse feedback loop known as “sovereign- bank nexus”. We show that Quantitative Easing can effectively mitigate the sovereign-bank nexus. Our results indicate that the ECB’s...