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Working Paper
Mutual Fund Flows, Monetary Policy and Financial Stability
We study the links between monetary policy and mutual fund flows, and the potential risks to financial stability that might arise from such flows, using data over the 2000-14 period. We find that monetary policy can have a direct influence on the allocation decisions of mutual fund investors. In particular, we show that monetary policy shocks explain mutual fund flow dynamics and that the effect of these shocks differs by investment strategy. Results suggest that positive shocks to the path of monetary policy (unexpected tightening) are associated with persistent outflows from bond mutual ...
Working Paper
International Dollar Flows
Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, ...
Working Paper
Reserve Balances, the Federal Funds Market and Arbitrage in the New Regulatory Framework
We study developments in reserve balances and the federal funds market in the context of two banking regulatory changes: the widening of the Federal Deposit Insurance Corporation (FDIC) assessment base and the introduction of the Basel III leverage ratio. Using a novel data set that includes FDIC fees and balance sheet data for depository institutions, we find that, as most foreign banks were not subject to the FDIC fee, they absorbed increasing amounts of reserve balances. Furthermore, foreign banks experienced positive and improving conditions for arbitraging between borrowing reserve ...
Working Paper
Predictability of Growth in Emerging Markets: Information in Financial Aggregates
This paper tests for predictability of output growth in a panel of 22 emerging market economies. We use pooled panel data methods that control for endogeneity and persistence in the predictor variables to test the predictive power of a large set of financial aggregates. Results show that stock returns, the term spread, default spreads and portfolio investment flows help predict output growth in emerging markets. We also find evidence that suggests that global aggregates such as the performance of commodity markets, a cross-sectional firm size factor, and returns on the market portfolio ...
Discussion Paper
The Universe of Leveraged Bank Loan and High Yield Bond U.S. Mutual Funds
This note aims to characterize the universe of Bank Loan (BL) mutual funds (MFs) and compare it against that of High Yield Bond (HYB) MFs on several dimensions.
Discussion Paper
Hedge Fund Treasury Exposures, Repo, and Margining
Hedge funds have become among the most active participants in U.S. Treasury (UST) markets over the past decade. As a result, the financial stability vulnerabilities associated with their leveraged Treasury market exposures, which are facilitated by low or zero haircuts on their Treasury repo borrowing, have become more prominent.