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Investment Funds, Monetary Policy, and the Global Financial Cycle

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  • Christoph Kaufmann

Abstract

This paper examines 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 from investors actively searching for yield on financial markets worldwide gained importance during the post-crisis “second phase of global liquidity”. 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 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 past decade and hold important policy implications for monetary and financial stability.

Suggested Citation

  • Christoph Kaufmann, 2023. "Investment Funds, Monetary Policy, and the Global Financial Cycle," Journal of the European Economic Association, European Economic Association, vol. 21(2), pages 593-636.
    • Handle: RePEc:oup:jeurec:v:21:y:2023:i:2:p:593-636.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvac043
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    Cited by:

    1. Riccardo Degasperi & Fabrizio Venditti, 2024. "US monetary policy spillovers to the euro area," Questioni di Economia e Finanza (Occasional Papers) 891, Bank of Italy, Economic Research and International Relations Area.
    2. Riccardo Degasperi & Seokki Simon Hong & Giovanni Ricco, 2020. "The Global Transmission of U.S Monetary Policy," ERSA Working Paper Series, Economic Research Southern Africa, vol. 0.
    3. di Iasio, Giovanni & Kaufmann, Christoph & Wicknig, Florian, 2022. "Macroprudential regulation of investment funds," Working Paper Series 2695, European Central Bank.
    4. Longaric, Pablo Anaya & Cera, Katharina & Georgiadis, Georgios & Kaufmann, Christoph, 2025. "Investment funds and euro disaster risk," Working Paper Series 3029, European Central Bank.
    5. Noam Ben-Ze’ev & Sigal Ribon & Roy Stein, 2024. "Monetary Policy and the Mutual Fund Market: Funding and Liquidity," Bank of Israel Working Papers 2024.11, Bank of Israel.
    6. Banegas, Ayelen & Montes-Rojas, Gabriel & Siga, Lucas, 2022. "The effects of U.S. monetary policy shocks on mutual fund investing," Journal of International Money and Finance, Elsevier, vol. 123(C).
    7. Pelizzon, Loriana & Mattiello, Riccardo & Schlegel, Jonas, 2025. "Growth of non-bank financial intermediaries, financial stability, and monetary policy," SAFE Working Paper Series 458, Leibniz Institute for Financial Research SAFE.
    8. Pelizzon, Loriana & Mattiello, Riccardo & Schlegel, Jonas, 2025. "Growth of non-bank financial intermediaries, financial stability, and monetary policy: Prepared for the ECB Forum," SAFE White Paper Series 114, Leibniz Institute for Financial Research SAFE.
    9. Cappiello, Lorenzo & Holm-Hadulla, Fédéric & Maddaloni, Angela & Mayordomo, Sergio & Unger, Robert & Arts, Laura & Meme, Nicolas & Asimakopoulos, Ioannis & Migiakis, Petros & Behrens, Caterina & Moura, 2021. "Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities," Occasional Paper Series 270, European Central Bank.
    10. Kaufmann, Christoph & Leyva, Jaime & Storz, Manuela, 2024. "Insurance corporations’ balance sheets, financial stability and monetary policy," Working Paper Series 2892, European Central Bank.
    11. Beckmann, Joscha & Bettendorf, Timo, 2025. "On the effects of global uncertainty shocks on portfolio flows," Discussion Papers 23/2025, Deutsche Bundesbank.

    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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