Access to Safe Assets and Financial Stability
33 Pages Posted: 9 Oct 2019
Date Written: September 27, 2019
Does access to a safe asset lead to a flight to safety in times of stress? We use the 2013 debt limit episode as our laboratory to answer this question. Money market funds with access to safe repos offered by the Federal Reserve display less sensitivity of outflows to risk exposures, relative to similar funds without access to the Fed. Moreover, access to safe assets does not come at the expense of a flight to safety. Our findings highlight the importance of having access to safe assets in reducing financial fragility of the shadow-banking sector.
Keywords: Money Market Mutual Funds, Safe Assets, Repo, Financial Stability
JEL Classification: G01, G23, E58
Suggested Citation: Suggested Citation