Monetary Policy and Money Market Funds in Europe

RePEc Short ID: ppa1310
ORCID iD: 0000-0003-1849-550X

Cipriani, Marco; Fricke, Daniel; Greppmair, Stefan; La Spada, Gabriele; Paludkiewicz, Karol

Discussion Paper

Monetary Policy and Money Market Funds in Europe

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.

Keywords: monetary policy; euro-denominated money market funds; Pass-through;

JEL Classification: G23; E4; E5;