The demand for money market mutual funds
AbstractThis 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.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 14/2005.
Length: 32 pages
Date of creation: 11 Jul 2005
Date of revision:
money market mutual funds; money demand;
Find related papers by JEL classification:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G29 - Financial Economics - - Financial Institutions and Services - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-21 (All new papers)
- NEP-FIN-2006-10-21 (Finance)
- NEP-FMK-2006-10-21 (Financial Markets)
- NEP-MAC-2006-10-21 (Macroeconomics)
- NEP-MON-2006-10-21 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Behavioral Factors in Mutual Fund Flows,"
Yale School of Management Working Papers
ysm135, Yale School of Management.
- Farinella, Joseph A. & Koch, Timothy W., 1999. "The Demand for Taxable and Tax-Exempt Money Market Mutual Funds," Journal of Macroeconomics, Elsevier, vol. 21(2), pages 335-353, April.
- James P. Dow, Jr. & Douglas W. Elmendorf, 1998. "The effect of stock prices on the demand for money market mutual funds," Finance and Economics Discussion Series 1998-24, Board of Governors of the Federal Reserve System (U.S.).
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