In terms of the effect of institutional investors on the monetary policy transmission mechanism, it may be recalled that monetary policy affects asset prices via the effect of changes in the policy rates on the yields on asset prices. Furthermore, changes in monetary policy may affect the risk perceptions of market participants, which will also feed into the pricing of financial assets.
Changes in asset prices will in turn (via wealth effects) affect the saving and spending behaviour of economic agents. Furthermore, financial innovation, for example in the form of new credit risk transfer products, created more investment opportunities for all market participants. This may have induced a more risk-taking investment behaviour and may have amplified asset price developments by  1  See e.g.