Panovska, Irina2022-08-232022-08-232021-082021-07-09August 202https://hdl.handle.net/10735.1/9457The dissertation consists of three chapters that study how U.S. and international financial markets are linked to demand shocks, especially to monetary policy during low interest rate periods and how markets respond to changes in the financial and economic environment. The first chapter, “Low Interest Rates and Asset Allocation: Evidence from Mutual Fund Flows” studies the effect of monetary policy on investors’ asset allocation decisions by using data on aggregated and disaggregated mutual fund flows. First, we find that following an expansionary monetary policy, both equity funds and bond funds receive large inflows. Specific to asset classes, equity investors move money from large-cap assets to mid-cap and small-cap assets in the near term and then shift assets from domestic to developed and emerging markets. This leads us to the hypothesis that equity investors become more risk-taking when the interest rate is low, we then test this with individual funds panel data, our results indeed confirm this hypothesis. However, bond investors are not risk-taking in response to the expansionary monetary policy. Furthermore, we offer empirical evidence that the Fed’s long-lasting zero lower bound (ZLB) policy increases both equity investors’ and bond investors’ appetite for risk-taking, although it has a much greater impact on bond investors than equity investors. Bond investors change from being risk-averse during the normal interest rate period to become risk-taking during the ZLB period. In the second chapter, “Monetary Policy, Financial Conditions and GDP at Risk” studies the interrelationship between monetary policy, financial conditions, and GDP growth based on crosscountry panel data. The results suggest that a contractionary monetary policy leads to tight financial conditions, which then have significant implications on the downside risks to future GDP growth. However, not all financial conditions variables have equal influence. when consider some specific variables: credit to households, debt securities, effective exchange rate, and open-end fund asset, only credit to households shows a consistently positive effect on near-term GDP growth. The third chapter, “Jobless Recoveries and Time Variation in Labor Markets”, coauthored with Irina Panovska, explores how the relationship between output and various labor market inputs has changed over time. We find that the responses of overall employment and unemployment to GDP have became weaker over time. However, the responses on the intensive margin become stronger, and this relationship evolved gradually over time.application/pdfenMonetary policyMacroeconomicsMutual fundsGross domestic productEmployment (Economic theory)UnemploymentThesis2022-08-23