Investment Funds, Monetary Policy, and the Global Financial Cycle

49 Pages Posted: 19 Nov 2020

Multiple version iconThere are 3 versions of this paper

Date Written: November, 2020


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.

Keywords: capital flows, international spillovers, monetary policy, non-bank financial intermediation

JEL Classification: F32, F42, G15, G23

Suggested Citation

Kaufmann, Christoph, Investment Funds, Monetary Policy, and the Global Financial Cycle (November, 2020). ECB Working Paper No. 20202489, Available at SSRN: or

Christoph Kaufmann (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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