Investment funds and the monetary-macroprudential policy interplay

Martin Hodula and Anisa Tiza Mimun

No 3151, Working Paper Series from European Central Bank

Abstract: Is there an undesired side-effect of banking regulation on the non-bank sector? How effective is the non-bank transmission channel of monetary policy in the presence of macroprudential policy? Using a state-dependent local projection approach and a rich dataset capturing macroprudential tightening across euro area countries, we present strong cross-country heterogeneity. In financially conservative markets (Germany, France, the Netherlands), tight monetary policy combined with stricter macroprudential measures significantly contracts investment fund assets. Conversely, financial hubs (Luxembourg, Ireland, Italy) experience counterintuitive expansions under the same policy mix. We introduce a simple balance-sheet framework that shows how interacting funding-cost and collateral-constraint channels generate these opposing responses. Further disaggregation shows that equity funds are more vulnerable to joint tightening in conservative systems, while bond funds partly offset contractionary forces in hubs through higher yields. JEL Classification: E58, G21, G28, G51

Keywords: macroprudential policy; monetary policy; non-bank financial intermediaries; state-dependent local projections (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253151

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