A Mirage, Not An Oasis: Easy Money and Financial Markets

2017-04-14T01:52:32-04:00October 15, 2014|

By Fabio Cortes, David Jones and Evan Papageorgiou

Low interest rates and other central bank policies in the United States have sent investors looking for higher returns on their investments. Money is pouring into mutual funds and exchange-traded funds, which is fueling a mispricing of credit and a build-up of risks to liquidity in the markets—the ability to trade in assets of any size, at any time, and to find a ready buyer.

Mutual funds and exchange-trade funds are the largest owners of U.S. corporate and foreign bonds (Chart 1). […]

Breaking the Buck—Reducing Systemic Risks Posed by Money Market Mutual Funds

2017-04-15T14:31:06-04:00November 10, 2010|

The breakdown of the short-term funding markets was one of the most striking features of the global financial crisis. Equally astonishing, and unexpected, was the central role that U.S. money market mutual funds played in contributing to this wholesale shut-down. For the October 2010 Global Financial Stability Report Jeanne Gobat and IMF colleagues examined the issue of systemic liquidity risk, including the role of money market mutual funds in the financial crisis and some concrete recommendations on how to fix it. Here, Jeanne reflects on their findings and shares some options for addressing industry risk.
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