The Unintended Consequences of the Zero Lower Bound Policy
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.
We acknowledge financial support from Inquire Europe. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Some money market funds responded to low interest rates by holding riskier investments; other funds closed. The Federal Reserve'...
Marco Di Maggio & Marcin Kacperczyk, 2016. "The unintended consequences of the zero lower bound policy," Journal of Financial Economics, . citation courtesy of