Money Market Funds and the Pricing of Near-Money Assets

Sebastian Doerr, Egemen Eren and Semyon Malamud

No 18813, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We introduce a new channel through which US money market funds (MMFs) affect the pricing of near-money assets and measured convenience yields. Our theoretical model reveals that MMFs' strategic interactions create frictions that are exacerbated by T-bill market illiquidity. Using instrumental variables, we show that MMFs have an economically significant price impact in the T-bill market. Consistent with strategic behavior, they internalize this price impact when setting repo rates and allocating portfolios. Our evidence suggests that these frictions drive a sizeable part of common measures of T-bill convenience yields. Our results have implications for monetary policy transmission, government debt issuance, and the regulation of MMFs. T-bills, repo, money market funds, near-money assets, liquidity, convenience yield

Keywords: T-bills; Repo market; Money market funds; near-money assets; Liquidity; Convenience yield (search for similar items in EconPapers)
JEL-codes: E44 G11 G12 G23 (search for similar items in EconPapers)
Date: 2024-02
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Related works:
Working Paper: Money market funds and the pricing of near-money assets (2023)
Working Paper: Money Market Funds and the Pricing of Near-Money Assets (2023)
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