with the funding risk of other investment vehicles that offer daily liquidity while investing in less - liquid assets, such as corporate bonds, bank loans, and municipal debt. funds that invest primarily in corporate bonds saw record outflows in march 2020. these open - end funds held about one - sixth of all outstanding u. s. corporate bonds prior to the crisis. bond mutual funds, including those specializing in corporate and municipal bonds, had an unprecedented $ 250 billion in outflows last march, far larger than their outflows at any time during the 2007 – 09 financial crisis. the associated forced sales of fund assets contributed to a sharp deterioration in fixed - income market liquidity that necessitated additional emergency interventions by the federal reserve. in assessing possible reforms to address this run risk, swing pricing could be helpful, because it reduces the first - mover advantage for running from a fund by imposing a cost when redemptions are high. swing pricing has been used for more than a decade in european mutual funds, where it has been shown to slow redemptions in stress events. 5 in the united states, mutual funds have not adopted swing pricing, in part because of technical obstacles. see dunhong jin, marcin kacperczyk, bige kahraman, and felix suntheim ( 2019 ), “ swing pricing and fragility in open - ended mutual funds, ” imf working paper 19 / 227 ( washington : international monetary fund, november ), https : / / www. imf. org / en / publications / wp / issues / 2019 / 11 / 01 / swing - pricing - and - fragility - in - open - endmutual - funds - 48729. - 5treasury market functioning the covid shock also revealed vulnerabilities in the market for u. s. treasury securities. the u. s. treasury market is one of the most important and liquid securities markets in the world, and many companies and investors treat treasury securities as risk - free assets and expect to be able to sell them quickly to raise money to meet any need for liquidity. trading conditions deteriorated rapidly in the second week of march as a wide range of investors sought to raise cash by liquidating the treasury securities they held. measures of trading costs widened as daily trading volumes for both on - and off - the - run securities surged. indicative bid - ask spreads widened by as much as 30 - fold for off - the - run securities. market

. 3. policy rules to inform discretionary monetary policy a third contribution of models to the monetary policy process is through simulations with alternative rules for federal reserve action. at lhm & a we designed our model to offer users four policy regimes : setting paths for the money supply, nonborrowed reserves or the federal funds rate or turning on a reaction function according to which the federal funds rate responds to developments in output, unemployment and inflation. while we increasingly used the reaction function in our analysis of alternative fiscal policies, we did not routinely take advantage of the reaction function to forecast monetary policy. another irony is that there is a much more active interest in the implications of monetary policy rules at the board, where discretionary policy is made, than in the private sector, where estimated rules might be effectively used to forecast monetary policy. the staff has examined a number of alternative rules, including those based on monetary aggregates, commodity prices, exchange rates, nominal income, and, most recently, taylor - type rules. these rules, in effect, adjust the real federal funds rate relative to some long - run equilibrium level in response to the gaps between actual and potential output and between inflation and some long - run inflation target. such a rule can be interpreted as either a descriptive or normative guide to policy. if the parameters of the policy rule are estimated over some recent sample period, the rule may describe the average response of the fomc over the period. alternatively, parameters can be derived from some optimizing framework, dependent on a specific objective function and model of the economy. stochastic simulations with such a rule can provide some confidence that following the rule will contribute to both short - run stabilization and long - term inflation goals in response to historical shocks to the economy and the rule, in turn, can provide discipline to discretionary policy by providing guidance on when and how aggressively to move interest rates in response to movements in output and inflation. the focus on rules is much more important under an interest rate operating procedure than under an operating procedure focused directly on monetary aggregate targets and is also more important under an interest rate operating procedure when the monetary aggregates, as has been the case for some time, do not bear a stable relationship to overall economic performance and therefore do not provide useful information about when and how aggressively to change interest rates. taylor - type rules, in this environment, provide a disciplined approach to varying interest rates in response to economic developments that both ensures a pro - cyclical response of interest