Money market funds, bank loans and interest rate liberalization: Evidence from an emerging market

Money market funds (MMFs) are generally considered safe investment vehicles, but the 2008 global financial crisis showed their vulnerability during market disruptions resulting in increased regulatory oversight across developed markets to protect investors. This paper examines the effect of MMF accounting regulation on investors in an emerging market context. It hypothesizes that the continued use of amortized cost methods to account for MMFs’ Net Asset Value (NAV) during market disruptions can result in unfair treatment of investors. The Egyptian money market provided a unique laboratory to test this hypothesis over a prominent economic crisis that combined high levels of interest rate volatility with a redemption-only structure for MMFs. A model that measures the discrepancies between the amortized and floating market NAVs per certificate for various money market portfolios (MMPs) simulating MMFs of different durations is tested using the Egyptian data. A sharp rise in interest rates is found to lead to significant discrepancies between the amortized NAV per certificate relative to their floating value. Serial investor redemptions of the certificates compound the discrepancies, but only certificate holders remaining in the funds bear the accumulated losses, which are augmented for portfolios with higher durations. The results suggest that emerging market regulators consider introducing the rules that switch to floating NAV calculations for MMFs during such periods to promote equality across all investors.

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ANALISIS INTEREST RATE PASS-THROUGH PADA MEKANISME TRANSMISI KEBIJAKAN MONETER INDONESIA

EKONOMIS Journal of Economics and Business ◽

10.33087/ekonomis.v1i1.13 ◽

2017 ◽

Vol 1 (1) ◽

pp. 125

Author(s):

Risna Amalia Hamzah ◽

Handri Handri

Keyword(s):

Monetary Policy ◽

Interest Rate ◽

Interest Rates ◽

Commercial Banks ◽

Money Market ◽

Bank Loans ◽

Short Term ◽

Consumer Loans ◽

Pass Through ◽

The Interest Rate

This reseach aimed to evaluate the performance of monetary policy, toexamine and test the magnitude of the response rates on deposits and bank loans to the money market interest rate, and how fast adjustment of the interest rate of deposits and loans in response to changes in money market interest rates. The performance evaluation of the level of adjustment of interest rate pass-through is done by testing the coefficient of adjustment of the interest rate deposits and loans in response to changes in money market interest rates. The object of this reseach is reported in interest rates interbank money market (rPUAB) and bank interest rates (loans and deposits) of all commercial banks in Indonesia, the data used in the form of a row of monthly time (monthly time series) of the annual report of Bank Indonesia and SEKI ( Economic and Financial statistics Indonesia), in the period 2005-2016. The method used in this research is the Autoregressive Distributed Lag (ARDL) for calculating the amount of long-term coefficients and Error Correction Model (ECM) -ARDL for calculating the amount of short-term coefficients. We find of the analysis indicate a change of monetary policy in the short term through the interest rate channel with its operational targets interest rates interbank money market (interbank) did not respond in full by the rates on deposits and loans in commercial banks in Indonesia, represented by the value of the degree of pass- through which less than 1 and there is a tendency that the longterm interest rates on loans and deposits experienced incomplete pass-through, then interest rates on consumer loans and deposits of 24 months has the speed of the slowest, which means consumer loans and deposits of 24 months in Indonesia unresponsive to changes in interbank rates. keywords: ARDL, ECM, Interest Rate pass-through, PUAB.

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