Asset Allocation and Monetary Policy: Evidence from the Eurozone

Harald Hau and Sandy Lai

No 5005, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: monetary policy; asset price inflation; risk seeking; Taylor rule residuals (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Asset Allocation and Monetary Policy: Evidence from the Eurozone (2018)
Journal Article: Asset allocation and monetary policy: Evidence from the eurozone (2016)
Working Paper: Asset Allocation and Monetary Policy: Evidence from the Eurozone (2013)
Working Paper: Asset Allocation and Monetary Policy: Evidence from the Eurozone (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5005

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