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The demand for money market mutual funds

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  • Kauko, Karlo

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.

Suggested Citation

  • Kauko, Karlo, 2005. "The demand for money market mutual funds," Bank of Finland Research Discussion Papers 14/2005, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2005_014
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    References listed on IDEAS

    as
    1. Domian, Dale L. & Reichenstein, William, 1997. "Performance and persistence in money market fund returns," Financial Services Review, Elsevier, vol. 6(3), pages 169-183.
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    3. Maggs, Gary E., 1991. "Depository disintermediation and the equilibrium quantity of money market mutual funds," Journal of Economics and Business, Elsevier, vol. 43(3), pages 253-263, August.
    4. Kerstin Bernoth & Jürgen von Hagen, 2004. "The Euribor Futures Market: Efficiency and the Impact of ECB Policy Announcements," International Finance, Wiley Blackwell, vol. 7(1), pages 1-24, March.
    5. Taufiq Choudhry, 1999. "Does Interest Rate Volatility Affect the US M1 Demand Function? Evidence From Cointegration," Manchester School, University of Manchester, vol. 67(6), pages 621-648, December.
    6. Domian, Dale L, 1992. "Money Market Mutual Fund Maturity and Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 519-527, November.
    7. 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.
    8. James P. Dow & 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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    More about this item

    Keywords

    money market mutual funds; money demand;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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