Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update

Afonso, Gara; Cipriani, Marco; Huang, Catherine; Hussein, Abduelwahab; La Spada, Gabriele

Discussion Paper

Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update

Abstract: The size of the money market fund (MMF) industry co-moves with the monetary policy cycle. In a post published in 2019, we showed that this co-movement is likely due to the stronger response of MMF yields to monetary policy tightening relative to bank deposit rates, combined with MMF shares and bank deposits being close substitutes from an investor’s perspective. In this post, we update the analysis and zoom in to the current monetary policy tightening by the Federal Reserve.

Keywords: bank deposits; Beta; Effective Federal Funds Rate (EFFR); money market funds; monetary policy;

JEL Classification: E52; G1; G2;