Monetary Policy Amplification through Bond Fund Flows

80 Pages Posted: 27 Jan 2022 Last revised: 14 May 2024

Date Written: May 1, 2024


I show that bond mutual funds and ETFs (“bond funds”) amplify the bond market transmission of monetary policy. During monetary tightening, bond funds experience large outflows of return-chasing capital and scale down their bond holdings much more than traditional bond investors such as insurance companies. In the cross section of firms, in response to monetary tightening, those more exposed to bond funds experience greater yield increase, issue less debt, and contract more on equity payout or real investment. For identification, I use a shift-share instrument to capture plausibly exogenous variation in bond fund exposure coming from fund flows and portfolio scaling over long horizons. I show evidence that the secular rise of bond funds has amplified the monetary sensitivity of aggregate bond yields and aggregate real investment.

Keywords: monetary policy transmission, bond fund flows, corporate bond, investor heterogeneity, relationship lending, market elasticity

Suggested Citation

Fang, Chuck, Monetary Policy Amplification through Bond Fund Flows (May 1, 2024). Jacobs Levy Equity Management Center for Quantitative Financial Research Working Paper, Available at SSRN: or

Chuck Fang (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics