The Heterogeneous Effects of U.S. Monetary Policy on Non-Bank Finance
IMF Working Papers, March 10, 2023
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- The Heterogeneous Effects of U.S. Monetary Policy on Non-Bank Finance
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Bibliographic details
- Authors: Andrew Hodge, Anke Weber
- Published: March 10, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400237263.001
Summary and Scope
- Authors: Andrew Hodge, Miss Anke Weber
- Publication date: March 10, 2023
- Objective: Study the effects of monetary policy shocks on the size of non-bank assets, flows into long-term mutual funds, and returns on their assets using flow of funds and high frequency data from the Investment Company Institute.
- Methodological note: Consolidation of chains of non-bank intermediation to avoid double counting.
Key Findings
- Contractionary monetary policy shocks shrink the assets of non-banks reliant on long-term funding.
- Contractionary monetary policy shocks increase the assets of non-banks reliant on short-term funding.
- Contractionary shocks cause sustained outflows from long-term mutual funds.
- Contractionary shocks reduce returns on long-term mutual fund assets.
- Using a Markov-Switching VAR, these effects are:
- More prevalent after the Global Financial Crisis.
- Opposite in some earlier periods.
Policy Implications
- Policymakers must contend with a complex and heterogeneous transmission of monetary policy to financial and macroeconomic outcomes through non-banks.
- Recognition that non-bank heterogeneity (long-term vs short-term funding reliance) matters for transmission and stability considerations.
Methodology and Data Highlights
- Data sources: Flow of funds and high frequency data from the Investment Company Institute.
- Analytical approach: Consolidation of non-bank intermediation chains; Markov-Switching VAR for regime analysis.
Subject Areas and Keywords
- Subject: Commercial banks, Econometric analysis, Financial institutions, Financial markets, Flow of funds, Money markets, Mutual funds, National accounts, Vector autoregression
- Keywords: bank finance, bank sector, Commercial banks, contractionary shock, Europe, Flow of funds, Global, monetary policy shock, monetary policy shocks, money market fund, Money markets, mutual fund performance and flows, Mutual funds, Non-bank market-based finance, transmission of monetary policy, Vector autoregression
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- Working Paper