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

Andrew Hodge and Anke Weber

No 2023/055, IMF Working Papers from International Monetary Fund

Abstract: 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: Non-bank market-based finance; mutual fund performance and flows; monetary policy shocks; monetary policy shock; bank finance; contractionary shock; bank sector; transmission of monetary policy; money market fund; Mutual funds; Commercial banks; Flow of funds; Money markets; Vector autoregression; Global; Europe (search for similar items in EconPapers)
Pages: 43
Date: 2023-03-10
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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