THE INFLUENCE OF MONETARY POLICY ON INVESTMENT DECISION IN THE EURO ZONE Valentin Mihai LEOVEANU  Anca BRATU  Abstract The paper aims to highlight and analyze the main theoretical and practical aspects regarding the relationship between investment and monetary policy, as monetary policy decisions had a greater or lesser relevance on investment decisions. First, the authors make a short review into the theoretical analysis of interconnections between money and investments, and then they try to reveal how the monetary policy influences the investment decisions through the transmission mechanism channels. The effect of monetary policy measures on investment decision is followed by the authors on three levels of analysis: the selection of investment projects, the choice of sources of financing and the measurement of risk. Keywords: Monetary policy transmission mechanism, capital budgeting, cost of capital, investment decision. 1. Interconnection between monetary policy and investments In the economic sense, investments can be defined as total expenses for the accumulation of capital goods by creation, modernization or replacement of fixed assets in order to obtain future cash flows. This definition highlights the feature of certainty of the investment expense made today against the character of uncertainty in obtaining future cash flows. In this regard, there should be made delimitation between investments in real assets and investments in financial assets. While the first helps to increase investor wealth, others express how it finances first and reflect the contribution of capital providers (shareholders or creditors) to their creation. This paper refers only to investments in real assets. From a macroeconomic perspective, the investments are a component of GDP in aggregate demand, so they have a direct and immediate impact on it, in that an increase in investment increases GDP, other things being the same (ceteris paribus). Moreover, since income (GDP) is an important determinant of consumption, revenue growth will be followed by an increase in consumption, so that there is a positive feedback between consumption and income through investments. Due to this mechanism, imports will increase and, as a result, will grow also investments based on equipment, machinery and foreign technology. Thus this will conduct to an increase in real interest rates which in turn depends on the deliberate choice of the central bank to increase or nominal money supply. Therefore, increasing the real interest rate is an inflection point leading to compression of investment, which in turn hampers GDP growth.  Assistant Lecturer, PhD Faculty of Administration and Business, University of Bucharest (email: v.leoveanu@yahoo.com).  Associate Professor, Faculty of Administration and Business, University of Bucharest (email: ancabratu2004@yahoo.fr). Through their short and violent fluctuations, investments are particularly an important economic variable of the business cycle. During economic expansion, investments grow at a much faster pace than consumption or GDP, regardless of interest rate movements. In contrast, on inflexion points of the economic situation, the influence of interest rates on investment is significant. During peak growth, the significant increase in interest rates would multiply disadvantageous the cost of credit for investment, reducing their dynamics. Investments often reach climax sooner than GDP, triggering a negative multiplier of consumer income and thereby stimulating the economy to go through a downturn. In times of depression, the emergence of low interest rates on the credit market is a welcome thing for companies, which in combination with any positive expectations regarding the economy going, can cause an increase in the low level of investment during the recession. On the other hand, investments in machinery and equipment may know, in contrast, a decline as economic recovery leads to the use of existing capital, not fully untapped. In analyzing the interconnections between money and investments, it is necessary to define monetary policy. Component of the mix of stabilization policies, monetary policy is an economic policy by which the monetary authority of a country controls the supply of money in the economy and which is used to promote certain endpoints such as price stability, growth and employment. Although most economists consider that monetary policy has a major impact on macroeconomic performance, there are significant differences in terms of decisions and actions to be taken that reflect a number of disagreements on economic policies, expressed through three macroeconomic models. The models chosen to represent economic structures that constrain monetary authority in choosing its policy focus on inflation, unemployment, income distribution