The Minimum Balance at Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds
AbstractThis paper advances the theory and methodology of signal extraction by introducing asymptotic and finite sample formulas for optimal estimators of signals in nonstationary multivariate time series. Previous literature has considered only univariate or stationary models. However, in current practice and research, econometricians, macroeconomists, and policy-makers often combine related series - that may have stochastic trends--to attain more informed assessments of basic signals like underlying inflation and business cycle components. Here, we use a very general model structure, of widespread relevance for time series econometrics, including flexible kinds of nonstationarity and correlation patterns and specific relationships like cointegration and other common factor forms. First, we develop and prove the generalization of the well-known Wiener-Kolmogorov formula that maps signal-noise dynamics into optimal estimators for bi-infinite series. Second, this paper gives the first explicit treatment of finite-length multivariate time series, providing a new method for computing signal vectors at any time point, unrelated to Kalman filter techniques; this opens the door to systematic study of near end-point estimators/filters, by revealing how they jointly depend on a function of signal location and parameters. As an illustration we present econometric measures of the trend in total inflation that make optimal use of the signal content in core inflation.
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Bibliographic InfoArticle provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.
Volume (Year): 46 (2013)
Issue (Month): 1 (Spring) ()
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money market funds; MMF; shareholders; risk; investors; investment; loss;
Other versions of this item:
- Patrick E. McCabe & Marco Cipriani & Michael Holscher & Antoine Martin, 2012. "The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds," Staff Reports, Federal Reserve Bank of New York 564, Federal Reserve Bank of New York.
- Patrick E. McCabe & Marco Cipriani & Michael Holscher & Antoine Martin, 2012. "The minimum balance at risk: a proposal to mitigate the systemic risks posed by money market funds," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2012-47, Board of Governors of the Federal Reserve System (U.S.).
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steffanie A. Brady & Ken E. Anadu & Nathaniel R. Cooper, 2012. "The stability of prime money market mutual funds: sponsor support from 2007 to 2011," Risk and Policy Analysis Unit Working Paper, Federal Reserve Bank of Boston RPA 12-3, Federal Reserve Bank of Boston.
- Lyon, Andrew B, 1984. " Money Market Funds and Shareholder Dilution," Journal of Finance, American Finance Association, American Finance Association, vol. 39(4), pages 1011-20, September.
- Jonathan Witmer, 2012. "Does the Buck Stop Here? A Comparison of Withdrawals from Money Market Mutual Funds with Floating and Constant Share Prices," Working Papers, Bank of Canada 12-25, Bank of Canada.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Regulating Money Market Mutual Funds: An Update
by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-07-28 12:27:36
- Bengtsson, E., 2013. "Fund Management and Systemic Risk - Lessons from the Global Financial Crisis," CITYPERC Working Paper Series, Department of International Politics, City University London 2013-06, Department of International Politics, City University London.
- Adrian, Tobias, 2014. "Financial stability policies for shadow banking," Staff Reports, Federal Reserve Bank of New York 664, Federal Reserve Bank of New York.
- Huberto M. Ennis, 2012. "Some theoretical considerations regarding net asset values for money market funds," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue 4Q, pages 231-254.
- Eisenbach, Thomas M. & Keister, Todd & McAndrews, James J. & Yorulmazer, Tanju, 2014. "Stability of funding models: an analytical framework," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Feb, pages 29-47.
- Manmohan Singh, 2012. "Puts in the Shadow," IMF Working Papers, International Monetary Fund 12/229, International Monetary Fund.
- Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports, Federal Reserve Bank of New York 638, Federal Reserve Bank of New York.
- Tobias Adrian Author-Name: Adam B. Ashcraft, 2012.
"shadow banking: a review of the literature,"
The New Palgrave Dictionary of Economics, Palgrave Macmillan,
- Marco Cipriani & Antoine Martin & Bruno M. Parigi, 2013. "Money market funds intermediation, bank instability, and contagion," Staff Reports, Federal Reserve Bank of New York 599, Federal Reserve Bank of New York.
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