Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/103078 
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper No. 5005
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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.
Subjects: 
monetary policy
asset price inflation
risk seeking
Taylor rule residuals
JEL: 
G11
G14
G23
Document Type: 
Working Paper
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