Tuesday, August 14th, 2012 11:47 am

Money Market Funds

Question A: The way in which money market funds normally trade – at one dollar per share, even though the per-share value of the assets backing them varies over time – made them vulnerable to a run in 2008 before they received taxpayer guarantees.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: Taxpayers would be better protected if each money market fund in the U.S. were instead required to trade at its floating net asset value.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question C: In the absence of floating net asset values, taxpayers would be better protected if each money market fund in the U.S. were required to set aside capital to protect against losses while holding back a portion of shareholders' cash for a time when they seek to withdraw all of their money.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 4
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 4
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 3
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard No Opinion
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago No Opinion
Bio/Vote History
         
Chetty Raj Chetty Stanford No Opinion
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 2
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 1
Bio/Vote History
         
Deaton Angus Deaton Princeton No Opinion
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 10
In 2008, Institutional investors ran, redeeming shares at a dollar each when a risk arose that this might later become impossible.
-see background information here
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Agree 10
The run on mmmfs was one of the systemic events that nearly blew up the world in 2008 L
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 4
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Holmström Bengt Holmström MIT Strongly Agree 9
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Agree 8
Bio/Vote History
         
Judd Kenneth Judd Stanford No Opinion
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Agree 10
The current structure of MMMFs makes them susceptible to runs. So an ugly blow up in Europe could spread to the US via the MMMFs.
-see background information here
-see background information here
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 4
I'm not expert on the institutional details but seems similar to standard demand deposit arrangement (a la diamond-dybvig).
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Agree 8
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 10
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Did Not Answer
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Strongly Agree 9
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT No Opinion
Haven't read or thought about these issues.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 9
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Agree 8
Bio/Vote History
         
Thaler Richard Thaler Chicago Strongly Agree 7
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 9
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 4
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 4
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 3
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard No Opinion
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago No Opinion
Bio/Vote History
         
Chetty Raj Chetty Stanford Agree 4
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 9
The alternative is committing not to rescue them, which is difficult.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 2
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 1
Bio/Vote History
         
Deaton Angus Deaton Princeton No Opinion
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 10
This would lower the incentive to be the first to run. These runs are destructive.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 8
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 8
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 7
Better protected means just that -- smaller chance of a run. Doesn't necessarily mean it is socially desirable.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford No Opinion
This is one possible remedy for the problem, but not the only one. It also has some features incompatible with the intended use of MMFs.
Bio/Vote History
         
Judd Kenneth Judd Stanford No Opinion
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Agree 7
Floating NAV definitely ends the risk of a run. Only caveat is what happens to the money that MIGHT migrate. Could be a whack a mole issue
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 5
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 1
Bio/Vote History
         
Maskin Eric Maskin Harvard No Opinion
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 10
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Did Not Answer
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Strongly Agree 9
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT No Opinion
Bio/Vote History
         
Shin Hyun Song Shin Princeton Strongly Agree 9
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Agree 7
Money market funds are mutual funds. They should not be allowed to pretend otherwise.
Bio/Vote History
         
Thaler Richard Thaler Chicago Uncertain 1
Not sure about this policy. Would be very confusing to investors who (wrongly) think of these as bank accounts rather than investments.
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 7
Bio/Vote History
         

Question C Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 4
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 3
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley No Opinion
Bio/Vote History
         
Autor David Autor MIT No Opinion
Bio/Vote History
         
Baicker Katherine Baicker Harvard No Opinion
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago No Opinion
Bio/Vote History
         
Chetty Raj Chetty Stanford No Opinion
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 5
Bio/Vote History
         
Cutler David Cutler Harvard Agree 3
Bio/Vote History
         
Deaton Angus Deaton Princeton No Opinion
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 10
This would lower run risk, analogous to bank capital requirements as a mitigant of depositor runs.
-see background information here
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Did Not Answer
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 5
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 8
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Uncertain 1
This sounds correct but I would need to think about it more to have much certainty about it.
Bio/Vote History
         
Hall Robert Hall Stanford Did Not Answer
Bio/Vote History
         
Holmström Bengt Holmström MIT Agree 8
Bigger capital cushions -- relative to the past -- are surely desirable. But the optimal level is unknown.
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford No Opinion
This is one possible remedy for the problem, but not the only one. It also has some features incompatible with the intended use of MMFs.
Bio/Vote History
         
Judd Kenneth Judd Stanford Agree 3
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Agree 7
SEC has a chance to require this and it would help. This probably leads to more migration than floating NAV.
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 5
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 10
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Did Not Answer
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Agree 9
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT No Opinion
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 9
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 5
How much capital would be "enough" in case of a run? When would the waiting period be enforeced? This is a weak policy alternative.
Bio/Vote History
         
Thaler Richard Thaler Chicago Disagree 3
Seems like this could ENCOURAGE runs.
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 7
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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