Working Paper: CEPR ID: DP18122
Authors: Johannes Breckenfelder; Marie Hoerova
Abstract: Are central bank tools effective in reaching non-banks with no access to the lender-of-last-resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 61% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was up to five times higher compared to other banks.
Keywords: investment funds; lender of last resort; market maker of last resort; asset purchases; COVID-19 liquidity crisis
JEL Codes: E58; G01; G10; G21; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central Bank Interventions (E52) | Mitigating Investor Runs on Mutual Funds (E44) |
| PEPP Announcement (E60) | Performance Improvement of Mutual Funds (G23) |
| Central Bank Asset Purchases (E52) | Reducing Outflows (F32) |
| Central Bank Liquidity Provision (E58) | Facilitating Repo Lending to Funds (G23) |
| Banks Exposed to Liquidity Crisis (F65) | Increasing Lending Rates (G21) |