Giovanna Bua, Peter G Dunne, 26 June 2019

Money market funds are important from a monetary policy perspective because they provide bank-like services and they are active in short-term funding markets. This column examines how recent extreme monetary policies have affected their performance and behaviour. Extreme monetary policy puts money market funds, which do not have access to the ECB’s deposit facility, under pressure by depressing the yields available on the assets they typically hold, leaving them at a competitive disadvantage relative to banks.  This could cause outflows of investment and unintended intermediation between banks and funds. 

Marco Di Maggio, Marcin Kacperczyk, 19 July 2016

The zero lower bound policy for nominal interest rates was implemented to stimulate sluggish economic growth and boost employment. This column explores whether this policy had unintended effects on the money market fund industry. Traditionally enjoying relatively low and safe returns, money market funds could respond to the low interest rate environment by either exiting the market or changing product offerings and accepting higher portfolio risk. The results show evidence of both, and point to an important but neglected channel for monetary policy transmission.

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