In this paper, we evaluate the effect of the Russian-Ukraine crisis on the US and European MMF industries. We perform a difference-in-difference analysis to show an outflow of about 190 million USD from the prime MMFs compared to the Government MMFs in the US, suggesting investors' `flight to safety'. Hence, we document the spillover effects of geopolitical conflict on MMFs. However, European MMFs observe no `flight-to-safety' behavior. These results are robust to a battery of robustness checks. We discuss the possible causes and implications of our results.

During 2016-2019, the US and China engaged in a trade conflict. As a result, the US economy witnessed an unprecedented increase in trade policy uncertainty (TPU) after 2018. Does this increase in the TPU cause fluctuations in corporate investment? This paper uses aggregate and firm-level TPU indices to answer the question mentioned above. Using a unique instrumental variable, this study finds a significant negative relation between aggregate TPU and corporate investment. We report the negative relationship between TPU and investment is stronger for the firms that operate under higher investment irreversibility. Furthermore, firms that are overexposed to exchange rates are more susceptible to the negative effect of the TPU.

We analyze the impact of the United Kingdom's “Growth Plan” announcement on European Money Market Funds (MMFs). EU MMF regulations allow fixed net asset value (NAV) with liquidity fees and redemption gates and floating NAV without liquidity restrictions. The new regulations are designed to make MMFs more resilient under financial market stress. We find that Pounds denominated and/or UK-domicile fixed NAV MMFs experience fund outflows following the announcement. Our results suggest that the fixed NAV MMF liquidity fees and redemption gates prompted investors to move quickly in response to the market stress of the Growth Plan.

This paper examines the impact of government intervention on corporate investment decisions by combining a dynamic model with empirical evidence. We develop a utility-based investment model in which firms face capital adjustment costs and respond to fiscal incentives, such as subsidies, through a modified Euler equation. The model predicts that policy-induced reductions in the marginal cost of investment lead to increased capital expenditures among targeted firms. To test this prediction, we exploit the enactment of the CHIPS Act as a natural experiment and implement a difference-in-differences design using quarterly data on US-listed firms. We find that affected firms increased capital expenditures by approximately 0.5% of total assets, equivalent to an average of $60 million per firm per quarter, following the passage of the Act. Equity markets also responded favorably, reflecting investor recognition of policy-driven investment opportunities. Our findings highlight the efficacy of incentive-based industrial policy in stimulating private investment in strategic sectors.

This study examines the effect of the 2023 United States banking crisis due to the Fed interest rate hikes on the Money Market Funds (MMFs) industry. Using the Silicon Valley Bank (SVB) failure as an exogenous shock to the banking industry, we show that prime MMFs experience significant outflows during that period. We do not find any evidence that funds' weekly level liquidity (WLA) triggers any outflows during the crisis period. Further analysis shows that even if WLA goes below the threshold level, it does not cause any impact on the fund flows. In a novel result, we show that prime MMFs sponsored by banks experience significantly higher fund outflow as compared to their peers. Moreover, we also show that retail prime funds with an ex-ante exposure to Financial Commercial Papers (FinCPs) experience significant outflows during the period. 

We analyze the effects of economic policy uncertainty (EPU) on the behavior of money market funds (MMFs). We develop a dynamic model predicting that higher EPU reduces investor demand for prime MMFs and induces managers to cut portfolio risk and increase fee waivers. Using detailed fund-level data from 1995-2021, we document empirical evidence consistent with these predictions: elevated EPU leads to persistent outflows from prime MMFs, portfolio de-risking through shorter maturities and safer asset allocations, and larger fee waivers to retain investors. To address endogeneity, we instrument EPU with U.S. political polarization and also employ a residual policy uncertainty measure based on Canadian policy uncertainty, both of which confirm our baseline findings. The effects are robust to controls for monetary policy uncertainty and excluding crisis periods. Overall, our results show that policy uncertainty, not just realized policy shocks, systematically destabilizes MMFs and alters the functioning of short-term funding markets.