The zero decrease certain coverage for nominal interest rates was implemented to stimulate sluggish financial development and enhance employment. This column explores whether this policy had unintended effects on the money market fund trade. Historically having fun with relatively low and safe returns, money market funds might reply to the low interest rate setting by either exiting the market or altering product offerings and accepting greater portfolio danger. The results show proof of both, and level to an necessary but neglected channel for monetary policy transmission.
First, take note of the somewhat jagged purple line displayed in the exhibit. It gives a hypothetical monitoring of actual gross domestic product over several months. Two peaks are evident, labeled with P. One trough is displayed as nicely, marked by T. cash market with T + 1 rolling settlement and derivatives market with 4 sorts of options and futures products, an enormous amount …Continue reading