Monetary Policy Shocks and Portfolio Choice

Arbeitspapier

The paper shows that monetary policy shocks exert a substantial effect on the size and composition of capital flows and the trade balance for the United States, with a 100 basis point easing raising net capital inflows and lowering the trade balance by 1% of GDP, and explaining about 20-25% of their time variation. Monetary policy easing causes positive returns to both equities and bonds. Yet such a monetary policy easing shock also induces a shift in portfolio composition out of equities and into bonds, implying a negative conditional correlation between flows in equities and bonds. Moreover, such shocks induce a negative conditional correlation between equity flows and equity returns, but a positive conditional correlation between bond flows and bond returns. The findings thus provide evidence for the presence of a portfolio rebalancing motive behind investment decisions in equities, but the dominance of what is akin to a return chasing motive for bonds, conditional on monetary policy shocks. The results also shed light on the puzzle of the strongly time-varying equity-bond return correlations found in the literature.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 1122

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Monetary Policy ; Current Account Adjustment; Short-term Capital Movements
• Thema: asset prices ; Capital flows ; monetary policy ; Portfolio Choice ; sign restrictions ; trade balance ; United States ; vector auto regressions ; Geldpolitik ; Kapitalmobilität ; Handelsbilanz ; Portfolio-Management ; VAR-Modell ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Fratzscher, Marcel ; Saborowski, Christian ; Straub, Roland
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2009

Weitere Informationen

• Handle: http://hdl.handle.net/10419/153556
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ