scholarly journals The Role of Money Market Funds (MMFs) in the Austrian Theory of Money: a Comment on Money and the Business Cycle

2018 ◽  
pp. 333-352
Author(s):  
Olav A. Dirkmaat
Keyword(s):  
Interest Rates ◽  
Great Part ◽  
Money Market ◽  
Bank Run ◽  
Money Market Funds ◽  
Negative Interest Rates ◽  
Asset Value ◽  
The Business Cycle ◽  
Interest Payments

Money market funds (MMFs) represent $3 trillion dollars in finan- cial industry assets. However, regulations regarding MMFs have increased substantially after various of them have “broken the buck” in the 2008 crisis. Moreover, negative interest rates have  destroyed a great part of the MMF industry in Europe, since it is impossible to maintain a stable net asset value (NAV) and pay div- idends (which can be considered de facto interest payments) when the underlying assets have negative yields. Yet, despite the recent exodus of MMFs, MMFs rarely get into trouble. In 1978, First Multi- fund for Daily Income (FMDI) went bankrupt, with investors even- tually taking a 6% loss. Yet the average maturity of FMDI’s assets was longer than two years, so FMDI could hardly be considered a MMF. In 1994, the Community Bankers Fund “broke the buck,” leading to a 4% loss to shareholders; curiously, no “redemption run” (equivalent of a bank run) occurred. In 2008, the Reserve Pri- mary Fund “broke the buck” due to their exposure to Lehman, but eventually paid back 99 cents on the dollar (1% loss).  

scholarly journals Valuation discrepancies in money market funds during market disruptions: evidence from Egypt

2020 ◽  
Vol 17 (3) ◽  
pp. 97-110
Author(s):  
Kariman Kordy ◽  
Aliaa Bassiouny ◽  
Eskandar Tooma
Keyword(s):  
Interest Rates ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Money Market ◽  
Regulatory Oversight ◽  
Accounting Regulation ◽  
Money Market Funds ◽  
Interest Rate Volatility ◽  
Asset Value ◽  
Accumulated Losses

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.

Role of Negative Interest Rates for Energy Assets Pricing in Financial Markets

2021 ◽  
pp. 107-119
Author(s):  
Ismail Ismailov ◽  
Tomonobu Senjyu
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
World Economy ◽  
Foreign Currency ◽  
Banking System ◽  
Negative Interest Rates ◽  
The World ◽  
Energy Assets ◽  
National Banking System

The world economy strives for globalization, and most energy assets are connected with each other through correspondent banks and other mutual operations. The relevance of the topic of the thesis is due to the fact that in September 2019 a number of proposals were made to introduce the practice of negative interest rates in the national banking system due to the fact that Russian energy assets are not profitable to place in foreign currency..

scholarly journals Lessons from a Review of Money, Banking, and the Business Cycle

2018 ◽  
Vol 21 (2) ◽  
pp. 97-113
Author(s):  
Brian P. Simpson
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Austrian Economics ◽  
Business Cycle Theory ◽  
Austrian Business Cycle Theory ◽  
Austrian Business Cycle ◽  
The Business Cycle ◽  
Rate Of Profit ◽  
The Relationship

Abstract Shawn Ritenour provides a review of my two-volume book titled Money, Banking, and the Business Cycle in the winter 2016 issue of The Quarterly Journal of Austrian Economics. This paper constitutes a response to some of the criticisms of the book in his review. In this response, I discuss topics such as the nature of profits, the sustainability of changes in time preference, the role of changes in prices versus changes in spending in the business cycle, the relationship between interest rates and the rate of profit, the nature of fraud, and the nature of value. I also discuss whether the structure of production can be measured using the average period of production. I address other issues raised by Ritenour as well. This discussion sheds light on Austrian business cycle theory and the nature of the business cycle.

The effect of negative policy rates on the interest-rate pass-through mechanism in the eurozone

2019 ◽  
Vol 7 (2) ◽  
pp. 247-262 ◽  
Author(s):  
Yannis Panagopoulos ◽  
Ekaterini Tsouma
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Money Market ◽  
Negative Interest Rates ◽  
Time Period ◽  
Pass Through ◽  
The Interest Rate ◽  
The Impact ◽  
The Relationship

This paper examines the impact of the June 2014 switch to negative interest rates (NIRs) by the European Central Bank (ECB) on the operation of the eurozone interest-rate pass-through (IRPT) mechanism. We focus on the relationship between major central-bank policy rates and selected money-market rates. That link is identified as the first stage of the IRPT mechanism and its dynamics are analysed using Granger causality and cointegration techniques for the time period January 2000–June 2017. Our empirical findings indicate a feedback relationship between the ECB policy and the money-market rates in the period prior to June 2014, but that relationship is non-operative when considering only the period of NIRs.

scholarly journals A stylized macro-model with interacting real, monetary and stock markets

2021 ◽  
Author(s):  
F. Cavalli ◽  
A. Naimzada ◽  
N. Pecora
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Stock Prices ◽  
Stock Markets ◽  
Stock Price ◽  
Market Integration ◽  
Dynamic Properties ◽  
National Income ◽  
Money Market ◽  
The Business Cycle

AbstractWe propose a model economy consisting of interdependent real, monetary and stock markets. The money market is influenced by the real one through a standard LM equation. Private expenditures depend on stock prices, which in turn are affected by interest rates and real profits, as these contribute to determine the participation level in the stock market. An evolutionary mechanism regulates agents’ participation in the stock market on the basis of a fitness measure that depends on the comparison between the stock return and the interest rate. Relying on analytical investigations complemented by numerical simulations, we study the economically relevant static and dynamic properties of the equilibrium, identifying the possible sources of instabilities and the channels through which they spread across markets. We aim at understanding what micro- and macro-factors affect the dynamics and, at the same time, how the dynamics of asset prices, which are ultimately influenced by the money market, behave over the business cycle. Starting from isolated markets, we show the effect of increasing the market interdependence on the national income, the stock price and the share of agents that participate in the stock market at the equilibrium. Moreover, we investigate the stabilizing/destabilizing role of market integration and the possible emergence of out-of-equilibrium dynamics.

scholarly journals Central bank interest policy: conceptual concepts and socio-economic context

2021 ◽  
Vol 7 (Extra-E) ◽  
pp. 531-536
Author(s):  
Aleksandr N. Sukharev ◽  
Sergey N. Smirnov
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Interest Rate Policy ◽  
Economic Context ◽  
Negative Interest Rates ◽  
Interest Policy ◽  
Rate Policy ◽  
The Interest Rate

The article reveals the goals and mechanisms of the interest rate policy of the central bank. The role of the discount rate in ensuring financial and macroeconomic stability is shown. The Taylor rule is presented and justified in a modified form, by including the money supply parameter in it. The phenomenon of negative interest rates is revealed.

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