Asset Allocation and Monetary Policy: Evidence from the Eurozone

Arbeitspapier

The eurozone has a single short-term nominal interest rate, but monetary policy conditions measured by real short-term interest rates varied substantially across countries in the period 2003-2010. We use this cross-country variation in the (local) tightness of monetary policy to examine its influence on equity and money market flows. In line with a powerful risk-shifting channel, we find that fund investors in countries with decreased real interest rates shift their portfolio investment out of the money market and into the riskier equity market - causing significant equity price inflation in countries where investment home bias is the strongest.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5005

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Information and Market Efficiency; Event Studies; Insider Trading ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: monetary policy ; asset price inflation ; risk seeking ; Taylor rule residuals

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hau, Harald ; Lai, Sandy
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/103078
• Last update: 10.03.2025, 11:44 AM CET