We examine the sensitivities of aggregate balances of retail and institutional money market funds (MMFs) and their potential substitutes, bank deposits, to changes in short-term interest rates while controlling for calendar-time effects. We find that institutional MMF and time deposit cash flows are sensitive to recent changes in short-term interest rates. Institutional MMF investors appear to take advantage of arbitrage opportunities created by MMFs using the amortized cost technique. Retail MMF investors are much less responsive to changes in interest rates
