Investment Funds, Monetary Policy, and the Global Financial Cycle.

This article investigates the role of international investment funds in transmitting global financial conditions, particularly US monetary policy shocks, to the euro area (EA) during the post-global financial crisis period (2007–2019). Using structural Bayesian vector autoregressions (BVAR) and high-frequency identification methods, it finds that a loosening of US monetary policy leads to significant inflows into global and EA investment funds, especially in riskier asset classes such as corporate and high-yield bonds and small-cap equities. These inflows coincide with elevated asset prices, improved financing conditions, and increased debt and equity issuance by non-financial corporations in the EA, which in turn stimulate real economic activity and inflation. The study highlights the growing importance of non-bank financial intermediation, particularly investment funds, as a channel for international financial spillovers, with implications for monetary and financial stability policies.