The Unintended Consequences of the Zero Lower Bound Policy

57 Pages Posted: 25 Jun 2014 Last revised: 9 Feb 2016

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 4, 2016

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: Quantitative easing, money market funds, reaching for yield, risk taking, fund exit, unconventional monetary policy

JEL Classification: E52, G23, G28

Suggested Citation

Di Maggio, Marco and Kacperczyk, Marcin T., The Unintended Consequences of the Zero Lower Bound Policy (February 4, 2016). Journal of Financial Economics (JFE), Forthcoming, Columbia Business School Research Paper No. 14-25, Available at SSRN: https://ssrn.com/abstract=2458587 or http://dx.doi.org/10.2139/ssrn.2458587

Marco Di Maggio (Contact Author)

Harvard Business School ( email )

Soldiers Field
Baker Library 265
Boston, MA 02163
United States

HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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