Monetary Policy and Money Market Funds

Giovanna Bua and Peter Dunne
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Giovanna Bua: Central Bank of Ireland

No 9/EL/19, Economic Letters from Central Bank of Ireland

Abstract: We explore how recent unconventional monetary policies have affected money market fund behaviour. This category of investment funds is important from a monetary policy perspective because its members provide investment opportunities that are expected to be safe and highly liquid while they are actively involved in short term interbank funding markets. Crucially, they do not have access to the ECB’s deposit facility. At its extreme, unconventional monetary policy puts money market funds under pressure by depressing the yields available on the assets they typically hold. This could cause excessive risk taking by funds, outflows of investment and unintended intermediation between banks and funds.We consider whether these concerns are well-grounded and reveal other unintended side-effects.

Date: 2019-08
New Economics Papers: this item is included in nep-cba and nep-mon
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