Working Paper: NBER ID: w22351
Authors: Marco Di Maggio; Marcin Kacperczyk
Abstract: We study the impact of the zero lower bound interest rate policy on the industrial organization of the U.S. money fund industry. We find that in response to policies that maintain low interest rates, money funds: change their product offerings by investing in riskier asset classes; are more likely to exit the market; and reduce the fees they charge their investors. The consequence of fund closures resulting from interest rate policy is the relocation of resources in affected fund families and in the asset management industry in general, as well as decline in capital of issuers borrowing from money funds.
Keywords: zero lower bound; money market funds; monetary policy; risk taking; financial stability
JEL Codes: E52; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| zero lower bound policy (E52) | increase in the probability of MMF exits (E17) |
| zero lower bound policy (E52) | increase in MMFs' risk profiles (G32) |
| zero lower bound policy (E52) | decrease in expenses charged by MMFs (G32) |
| increase in the probability of MMF exits (E17) | decline in profit margins (E11) |
| increase in MMFs' risk profiles (G32) | reaching for yield behavior (G11) |