Investment funds, monetary policy, and the global financial cycle

Arbeitspapier

This paper studies the role of international investment funds in the transmission of global financial conditions to the euro area using structural Bayesian vector auto regressions. While cross-border banking sector capital flows receded significantly in the aftermath of the global financial crisis, portfolio flows of investors actively searching for yield on financial markets world-wide gained importance during the post-crisis "second phase of global liquidity" (Shin, 2013). The analysis presented in this paper shows that a loosening of US monetary policy leads to higher investment fund inflows to equities and debt globally. Focussing on the euro area, these inflows do not only imply elevated asset prices, but also coincide with increased debt and equity issuance. The findings demonstrate the growing importance of non-bank financial intermediation over the last decade and have important policy implications for monetary and financial stability.

Object Details

• ISBN: 978-92-899-4406-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2489

Classification and Topics

• Classification: Wirtschaft ; Current Account Adjustment; Short-term Capital Movements ; International Policy Coordination and Transmission ; International Financial Markets ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: Monetary policy ; international spillovers ; capital flows ; non-bank financial intermediation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kaufmann, Christoph
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2866/493883
• Handle: http://hdl.handle.net/10419/229103
• Last update: 10.03.2025, 11:44 AM CET