The Demand for Money Market Mutual Funds

Bank of Finland Research Discussion Paper No. 14

32 Pages Posted: 30 Dec 2005

Multiple version iconThere are 2 versions of this paper

Date Written: 2005

Abstract

This paper presents a model on the demand for money market funds (MMFs). These funds are a very close substitute for M1 deposits, except that MMFs do not satisfy immediate transaction requirements. The demand for MMFs strengthens when the intended volume of transactions is low. A high interest rate level makes it expensive to hold M1 deposits. High interest rate volatility, paradoxically, increases the risk of holding M1 deposits stronger than the risk of holding MMFs. The results are largely corroborated by Finnish data.

Keywords: money market mutual funds, money demand

JEL Classification: G23, G29, E41

Suggested Citation

Kauko, Karlo, The Demand for Money Market Mutual Funds (2005). Bank of Finland Research Discussion Paper No. 14, Available at SSRN: https://ssrn.com/abstract=872702 or http://dx.doi.org/10.2139/ssrn.872702

Karlo Kauko (Contact Author)

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

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