Research Discussion Papers, Bank of Finland
The demand for money market mutual funds
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; (follow links to similar papers)
JEL-Codes: E41; G23; G29; (follow links to similar papers)
32 pages, July 11, 2005
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