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Monetary Policy and Money Market Funds in Europe

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Abstract

As shown in a past Liberty Street Economics post, in the United States, the yields of money market fund (MMF) shares respond to changes in monetary policy rates much more than the rates of bank deposits; in other words, the MMF beta is much higher than the deposit beta. Consistent with this, the size of the U.S. MMF industry fluctuates over the interest rate cycle, expanding during times of monetary policy tightening. In this post, we show that the relationship between the policy rates of the European Central Bank (ECB) and the size of European MMFs investing in euro-denominated securities is also positive—as long as policy rates are positive; after the ECB introduced negative policy rates in 2015, that relationship broke down, as MMFs received large inflows during this period.

Suggested Citation

  • Marco Cipriani & Daniel Fricke & Stefan Greppmair & Gabriele La Spada & Karol Paludkiewicz, 2024. "Monetary Policy and Money Market Funds in Europe," Liberty Street Economics 20240411, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98056
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    More about this item

    Keywords

    monetary policy; euro-denominated money market funds; Pass-through;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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