IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v147y2024ics0022199623001320.html
   My bibliography  Save this article

You can’t always get what you want (where you want it): Cross-border effects of the US money market fund reform

Author

Listed:
  • Fricke, Daniel
  • Greppmair, Stefan
  • Paludkiewicz, Karol

Abstract

This paper documents significant cross-border effects of the 2014 US money market fund (MMF) reform on euro area MMFs. As US-based prime funds became less money-like due to the reform, euro area-based prime funds received large inflows from foreign investors. These cross-border flows were mainly motivated by the search for stable NAV instruments. Consistent with an easing of competitive pressure, euro area prime MMFs reduced their risk-taking. Lastly, the 2017 EU MMF regulation, a weaker regulatory intervention compared to the US reform, did not lead to a reversal of the documented cross-border flows.

Suggested Citation

  • Fricke, Daniel & Greppmair, Stefan & Paludkiewicz, Karol, 2024. "You can’t always get what you want (where you want it): Cross-border effects of the US money market fund reform," Journal of International Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:inecon:v:147:y:2024:i:c:s0022199623001320
    DOI: 10.1016/j.jinteco.2023.103846
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199623001320
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2023.103846?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. La Spada, Gabriele, 2018. "Competition, reach for yield, and money market funds," Journal of Financial Economics, Elsevier, vol. 129(1), pages 87-110.
    2. Asli Demirguc-Kunt & Enrica Detragiache & Ouarda Merrouche, 2013. "Bank Capital: Lessons from the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1147-1164, September.
    3. Altavilla, Carlo & Brugnolini, Luca & Gürkaynak, Refet S. & Motto, Roberto & Ragusa, Giuseppe, 2019. "Measuring euro area monetary policy," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 162-179.
    4. Goldstein, Itay & Jiang, Hao & Ng, David T., 2017. "Investor flows and fragility in corporate bond funds," Journal of Financial Economics, Elsevier, vol. 126(3), pages 592-613.
    5. Cerutti, Eugenio & Claessens, Stijn & Puy, Damien, 2019. "Push factors and capital flows to emerging markets: why knowing your lender matters more than fundamentals," Journal of International Economics, Elsevier, vol. 119(C), pages 133-149.
    6. Koijen, Ralph S.J. & Koulischer, François & Nguyen, Benoît & Yogo, Motohiro, 2021. "Inspecting the mechanism of quantitative easing in the euro area," Journal of Financial Economics, Elsevier, vol. 140(1), pages 1-20.
    7. Emily A Gallagher & Lawrence D W Schmidt & Allan Timmermann & Russ Wermers, 2020. "Investor Information Acquisition and Money Market Fund Risk Rebalancing during the 2011–2012 Eurozone Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1445-1483.
    8. Alan Moreira & Alexi Savov, 2017. "The Macroeconomics of Shadow Banking," Journal of Finance, American Finance Association, vol. 72(6), pages 2381-2432, December.
    9. Ricardo J. Caballero & Alp Simsek, 2020. "A Model of Fickle Capital Flows and Retrenchment," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2288-2328.
    10. Frame, W. Scott & Mihov, Atanas & Sanz, Leandro, 2020. "Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(3), pages 955-988, May.
    11. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    12. Ferreira, Miguel A. & Keswani, Aneel & Miguel, Antonio F. & Ramos, Sofia B., 2012. "The flow-performance relationship around the world," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1759-1780.
    13. Albertazzi, Ugo & Cimadomo, Jacopo & Maffei-Faccioli, Nicolò, 2021. "Foreign banks and the doom loop," Working Paper Series 2540, European Central Bank.
    14. Cipriani, Marco & La Spada, Gabriele, 2021. "Investors’ appetite for money-like assets: The MMF industry after the 2014 regulatory reform," Journal of Financial Economics, Elsevier, vol. 140(1), pages 250-269.
    15. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    16. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
    17. Lawrence Schmidt & Allan Timmermann & Russ Wermers, 2016. "Runs on Money Market Mutual Funds," American Economic Review, American Economic Association, vol. 106(9), pages 2625-2657, September.
    18. Joel F. Houston & Chen Lin & Yue Ma, 2012. "Regulatory Arbitrage and International Bank Flows," Journal of Finance, American Finance Association, vol. 67(5), pages 1845-1895, October.
    19. Di Maggio, Marco & Kacperczyk, Marcin, 2017. "The unintended consequences of the zero lower bound policy," Journal of Financial Economics, Elsevier, vol. 123(1), pages 59-80.
    20. Mr. Philip R. Lane & Mr. Gian M Milesi-Ferretti, 2017. "International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Working Papers 2017/115, International Monetary Fund.
    21. Chen, Qi & Goldstein, Itay & Jiang, Wei, 2010. "Payoff complementarities and financial fragility: Evidence from mutual fund outflows," Journal of Financial Economics, Elsevier, vol. 97(2), pages 239-262, August.
    22. Ms. Yuko Hashimoto & Signe Krogstrup, 2019. "Capital Flows: The Role of Bank and Nonbank Balance Sheets," IMF Working Papers 2019/085, International Monetary Fund.
    23. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    24. Tripathy, Jagdish, 2020. "Cross-border effects of regulatory spillovers: Evidence from Mexico," Journal of International Economics, Elsevier, vol. 126(C).
    25. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    26. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    27. Lei Li & Yi Li & Marco Macchiavelli & Xing (Alex) Zhou, 2021. "Liquidity Restrictions, Runs, and Central Bank Interventions: Evidence from Money Market Funds [Dealer financial conditions and lender-of-last-resort facilities]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5402-5437.
    28. De Marco, Filippo, 2019. "Bank Lending and the European Sovereign Debt Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(1), pages 155-182, February.
    29. Boyer, Pierre C. & Kempf, Hubert, 2020. "Regulatory arbitrage and the efficiency of banking regulation," Journal of Financial Intermediation, Elsevier, vol. 41(C).
    30. Efraim Benmelech & Ralf R. Meisenzahl & Rodney Ramcharan, 2017. "The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(1), pages 317-365.
    31. Eisenschmidt, Jens & Ma, Yiming & Zhang, Anthony Lee, 2022. "Monetary policy transmission in segmented markets," Working Paper Series 2706, European Central Bank.
    32. G. Andrew Karolyi & Alvaro G. Taboada, 2015. "Regulatory Arbitrage and Cross‐Border Bank Acquisitions," Journal of Finance, American Finance Association, vol. 70(6), pages 2395-2450, December.
    33. Parida, Sitikantha & Tang, Zhenyang, 2018. "Price competition in the mutual fund industry," Economic Modelling, Elsevier, vol. 70(C), pages 29-39.
    34. Gorton, Gary & Pennacchi, George, 1990. "Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
    35. Emily A Gallagher & Lawrence D W Schmidt & Allan Timmermann & Russ Wermers, 2020. "Investor Information Acquisition and Money Market Fund Risk Rebalancing during the 2011–2012 Eurozone Crisis," Review of Finance, European Finance Association, vol. 33(4), pages 1445-1483.
    36. Sergey Chernenko & Adi Sunderam, 2014. "Frictions in Shadow Banking: Evidence from the Lending Behavior of Money Market Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 27(6), pages 1717-1750.
    37. Roni Kisin & Asaf Manela, 2016. "The Shadow Cost of Bank Capital Requirements," The Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1780-1820.
    38. Wahal, Sunil & Wang, Albert (Yan), 2011. "Competition among mutual funds," Journal of Financial Economics, Elsevier, vol. 99(1), pages 40-59, January.
    39. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129.
    40. Michael J Cooper & Michael Halling & Wenhao Yang, 2021. "The Persistence of Fee Dispersion among Mutual Funds [The emerging landscape of retail e-commerce]," Review of Finance, European Finance Association, vol. 25(2), pages 365-402.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fricke, Daniel & Greppmair, Stefan & Paludkiewicz, Karol, 2022. "You can't always get what you want (where you want it): Cross-border effects of the US money market fund reform," Discussion Papers 03/2022, Deutsche Bundesbank.
    2. Lugo, Stefano, 2023. "Cost of monitoring and risk taking in the money market funds industry," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    3. Järvenpää, Maija & Paavola, Aleksi, 2021. "Investor monitoring, money-likeness and stability of money market funds," Research Discussion Papers 2/2021, Bank of Finland.
    4. repec:zbw:bofrdp:2021_002 is not listed on IDEAS
    5. Li, Yi, 2021. "Reciprocal lending relationships in shadow banking," Journal of Financial Economics, Elsevier, vol. 141(2), pages 600-619.
    6. Cipriani, Marco & La Spada, Gabriele, 2021. "Investors’ appetite for money-like assets: The MMF industry after the 2014 regulatory reform," Journal of Financial Economics, Elsevier, vol. 140(1), pages 250-269.
    7. Dasgupta, Amil & Choi, Jaewon & Oh, Ji Yeol Jimmy, 2019. "Bond Funds and Credit Risk," CEPR Discussion Papers 14134, C.E.P.R. Discussion Papers.
    8. Parise, Gianpaolo & Cutura, Jannic & Schrimpf, Paul, 2020. "Debt De-risking," CEPR Discussion Papers 14817, C.E.P.R. Discussion Papers.
    9. Choi, Jaewon & Kronlund, Mathias & Oh, Ji Yeol Jimmy, 2022. "Sitting bucks: Stale pricing in fixed income funds," Journal of Financial Economics, Elsevier, vol. 145(2), pages 296-317.
    10. Banegas, Ayelen & Montes-Rojas, Gabriel & Siga, Lucas, 2022. "The effects of U.S. monetary policy shocks on mutual fund investing," Journal of International Money and Finance, Elsevier, vol. 123(C).
    11. Sergey Chernenko & Adi Sunderam, 2016. "Liquidity Transformation in Asset Management: Evidence from the Cash Holdings of Mutual Funds," NBER Working Papers 22391, National Bureau of Economic Research, Inc.
    12. Chernenko, Sergey & Sunderam, Adi, 2016. "Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds," ESRB Working Paper Series 23, European Systemic Risk Board.
    13. Ye Li & Simon Mayer & Simon Mayer, 2021. "Money Creation in Decentralized Finance: A Dynamic Model of Stablecoin and Crypto Shadow Banking," CESifo Working Paper Series 9260, CESifo.
    14. Linardi, Fernando M., 2020. "Investors’ behavior and mutual fund portfolio allocations in Brazil during the global financial crisis," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    15. Ryan, Ellen, 2022. "Are fund managers rewarded for taking cyclical risks?," Working Paper Series 2652, European Central Bank.
    16. Ciccone, Julien & Marchiori, Luca & Morhs, Romuald, 2022. "The flow-performance relationship of global investment funds," Journal of International Money and Finance, Elsevier, vol. 127(C).
    17. Ryan, Ellen, 2022. "Are fund managers rewarded for taking cyclical risks?," ESRB Working Paper Series 134, European Systemic Risk Board.
    18. Fernando M. Linardi, 2020. "Investors’ Behavior and Mutual Fund Portfolio Allocations in Brazil during the Global Financial Crisis," Working Papers Series 517, Central Bank of Brazil, Research Department.
    19. Baghai, Ramin P. & Giannetti, Mariassunta & Jäger, Ivika, 2022. "Liability Structure and Risk Taking: Evidence from the Money Market Fund Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(5), pages 1771-1804, August.
    20. Mugerman, Yevgeny & Steinberg, Nadav & Wiener, Zvi, 2022. "The exclamation mark of Cain: Risk salience and mutual fund flows," Journal of Banking & Finance, Elsevier, vol. 134(C).
    21. Kim, Hugh Hoikwang, 2020. "Information spillover of bailouts," Journal of Financial Intermediation, Elsevier, vol. 43(C).

    More about this item

    Keywords

    Cross-border effects; Regulation; Money market funds; Risk-taking;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:147:y:2024:i:c:s0022199623001320. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.