Asset Allocation and Monetary Policy: Evidence from the Eurozone

Harald Hau and Sandy Lai
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Sandy Lai: University of Hong Kong

No 13-39, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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 Ination; Risk Seeking; Taylor Rule Residuals (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2013-07, Revised 2018-12
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Related works:
Journal Article: Asset allocation and monetary policy: Evidence from the eurozone (2016)
Working Paper: Asset Allocation and Monetary Policy: Evidence from the Eurozone (2014)
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:chf:rpseri:rp1339

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