Investment funds, monetary policy, and the global financial cycle

Christoph Kaufmann

No 119, ESRB Working Paper Series from European Systemic Risk Board

Abstract: This paper studies the role of international investment funds in the transmission of global financial conditions to the euro area using structural Bayesian vector auto regressions. While cross-border banking sector capital flows receded significantly in the aftermath of the global financial crisis, portfolio flows of investors actively searching for yield on financial markets world-wide gained importance during the post-crisis “second phase of global liquidity” (Shin, 2013). The analysis presented in this paper shows that a loosening of US monetary policy leads to higher investment fund inflows to equities and debt globally. Focussing on the euro area, these inflows do not only imply elevated asset prices, but also coincide with increased debt and equity issuance. The findings demonstrate the growing importance of non-bank financial intermediation over the last decade and have important policy implications for monetary and financial stability. JEL Classification: F32, F42, G15, G23

Keywords: capital flows; international spillovers; Monetary policy; non-bank financial intermediation (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-mon
Note: 2857527
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https://www.esrb.europa.eu//pub/pdf/wp/esrb.wp119~798045b176.en.pdf (application/pdf)

Related works:
Journal Article: Investment Funds, Monetary Policy, and the Global Financial Cycle (2023)
Working Paper: Investment funds, monetary policy, and the global financial cycle (2020)
Working Paper: Investment funds, monetary policy, and the global financial cycle (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:2021119

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