The Dynamic Relationship Among the Money Market Mutual Funds, the Commercial Paper Market and the Repo Market

Majid Haghani Rizi and N Kishor

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we investigate the short-run and the long-run relationship among the financial assets of the money market funds, the commercial paper, and the repurchase agreement markets by undertaking a cointegration analysis of quarterly data over the 1985-2017 period. The evidence suggests that there exists a common long-term cointegrating trend among these three components of the shadow banking system. Any disequilibrium in this long-run relationship among these variables is corrected by movement in the financial assets of the money market funds. The Beveridge-Nelson decomposition from the estimated cointegrating relationship shows that the cyclical component in the money market funds is large and captures the huge swings in these markets during the financial crisis. Our results confirm the narrative evidence presented in Krishnamurthy et al. (2014), who argue that the short-term debt market investment opportunities in the form of the commercial paper and the repo market played a crucial role in the expansion of the balance sheet of the money market funds.

Keywords: Shadow banking; Money Market Fund; Commercial Paper; Repurchase Agreement; TrendCycle Decomposition; Cointegration (search for similar items in EconPapers)
JEL-codes: E44 G01 G10 G21 G32 (search for similar items in EconPapers)
Date: 2017-12-23
New Economics Papers: this item is included in nep-his, nep-mac and nep-mon
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Related works:
Journal Article: The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83471

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