IMF Working Papers

The Heterogeneous Effects of U.S. Monetary Policy on Non-Bank Finance

By Andrew Hodge, Anke Weber

March 10, 2023

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Andrew Hodge, and Anke Weber. The Heterogeneous Effects of U.S. Monetary Policy on Non-Bank Finance, (USA: International Monetary Fund, 2023) accessed October 4, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using flow of funds and high frequency data from the Investment Company Institute, we study the effects of monetary policy shocks on the size of non-bank assets as well as on flows into long-term mutual funds and returns on their assets. Consolidating chains of non-bank intermediation to avoid double counting, we find that contractionary monetary policy shocks shrink the assets of non-banks reliant on long-term funding, while increasing those of nonbanks reliant on short-term funding. Contractionary shocks also cause sustained outflows from long-term mutual funds and reduce their returns. Using a Markov-Switching VAR, we find these effects to be more prevalent after the Global Financial Crisis, and show that monetary policy shocks had the opposite effects in some earlier periods. Policymakers will thus have to contend with a complex and heterogeneous transmission of monetary policy to financial and macroeconomic outcomes through the non-banks.

Keywords: Monetary policy shocks, Mutual fund performance and flows, Non-bank market-based finance

Publication Details

  • Pages:

    43

  • Volume:

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  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2023/055

  • Stock No:

    WPIEA2023055

  • ISBN:

    9798400237263

  • ISSN:

    1018-5941