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Measuring Substitution in Monetary-Asset Demand Systems

Author

Listed:
  • Davis, George C
  • Gauger, Jean

Abstract

The Allen elasticity of substitution (AES) is widely used to study monetary asset substitution and structural demand stability. C. Blackorby and R. R. Russell (1989) show that the AES is uninformative and that the Morishima elasticity of substitution (MES) is the appropriate measure, a point overlooked in the monetary literature. Use of improper measures can lead to incorrect inferences. This paper considers five alternative measures of substitution: the AES; MES; the Hicksian and Marshallian elasticities of demand; and Y. Mundlak's unencountered, but appealing, constant cost elasticity of substitution. Selection of the substitution measure appropriate to respective research questions is addressed.

Suggested Citation

  • Davis, George C & Gauger, Jean, 1996. "Measuring Substitution in Monetary-Asset Demand Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(2), pages 203-208, April.
    • Handle: RePEc:bes:jnlbes:v:14:y:1996:i:2:p:203-08
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    Cited by:

    1. Barnett, William A. & Serletis, Apostolos, 2008. "Consumer preferences and demand systems," Journal of Econometrics, Elsevier, vol. 147(2), pages 210-224, December.
    2. Drake, Leigh & Fleissig, Adrian R., 2008. "A Note On The Policy Implications Of Using Divisia Consumption And Monetary Aggregates," Macroeconomic Dynamics, Cambridge University Press, vol. 12(1), pages 132-149, February.
    3. Jones, Barry E. & Fleissig, Adrian R. & Elger, Thomas & Dutkowsky, Donald H., 2008. "Retail sweep programs and monetary asset substitution," Economics Letters, Elsevier, vol. 99(1), pages 159-163, April.
    4. Ermakov Yuri & Starobinskaya Nadegda M., 2016. "Advertising As Part Of Complex Marketing Communications University," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 3, October.
    5. Jones, Barry E. & Fleissig, Adrian R. & Elger, Thomas & Dutkowsky, Donald H., 2008. "Monetary policy and monetary asset substitution," Economics Letters, Elsevier, vol. 99(1), pages 18-22, April.
    6. Fleissig, Adrian R. & Jones, Barry E., 2015. "The impact of commercial sweeping on the demand for monetary assets during the Great Recession," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 412-422.
    7. Barnett, William A. & Serletis, Apostolos, 2008. "Measuring Consumer Preferences and Estimating Demand Systems," MPRA Paper 12318, University Library of Munich, Germany.
    8. Hjertstrand, Per & Jones, Barry E., 2013. "What Do Revealed Preference Axioms Reveal about Elasticities of Demand?," Working Paper Series 972, Research Institute of Industrial Economics.
    9. Adrian R. Fleissig, 2016. "Changing Trends in U.S. Alcohol Demand," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(3), pages 263-276, September.
    10. Sueyoshi, Toshiyuki & Yuan, Yan, 2016. "Marginal Rate of Transformation and Rate of Substitution measured by DEA environmental assessment: Comparison among European and North American nations," Energy Economics, Elsevier, vol. 56(C), pages 270-287.
    11. Jha, Raghbendra & Prasad Rath, Deba, 2001. "On the Endogeneity of the Money Multiplier in India," Departmental Working Papers 2001-01, The Australian National University, Arndt-Corden Department of Economics.
    12. Libo Xu & Apostolos Serletis, 2022. "The Demand for Assets: Evidence from the Markov Switching Normalized Quadratic Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 989-1025, June.
    13. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Returns to Scale, Damages to Scale, Marginal Rate of Transformation and Rate of Substitution in DEA Environmental Assessment," Energy Economics, Elsevier, vol. 34(4), pages 905-917.
    14. Serletis, Apostolos & Shahmoradi, Asghar, 2010. "Consumption effects of government purchases," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 892-905, September.
    15. Gauger, Jean, 1998. "Economic Impacts on the Money Supply Process," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 553-577, July.
    16. Aliaskarova Zhamilla, 2016. "Students Exchange In Russia: Conditions And Reasons For Realization," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 3, October.
    17. Albert Okunade & Vasudeva Murthy, 2008. "Are physician and non-physician providers of outpatient mental healthcare substitutes or complements? a conceptual clarification," Health Care Management Science, Springer, vol. 11(4), pages 393-398, December.
    18. Jin, Man, 2018. "Measuring substitution in China's monetary-assets demand system," China Economic Review, Elsevier, vol. 50(C), pages 117-132.
    19. Petrashen Eugenia P. & Alferovsky Kirill A. & Tolstova Alexandra A., 2018. "The Role Of Employers' Organizations In Brand Building Of The Program "Environmental Design" In Saint-Petersburg State University," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 3, November.
    20. Fleissig, Adrian R. & Jones, Barry E., 2023. "U.K. household-sector money demand during Brexit and the pandemic," Economic Modelling, Elsevier, vol. 123(C).
    21. Drake, Leigh & Fleissig, Adrian R., 2010. "Substitution between monetary assets and consumer goods: New evidence on the monetary transmission mechanism," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2811-2821, November.
    22. Anderson, Richard G. & Duca, John V. & Fleissig, Adrian R. & Jones, Barry E., 2019. "New monetary services (Divisia) indexes for the post-war U.S," Journal of Financial Stability, Elsevier, vol. 42(C), pages 3-17.
    23. Zagaglia, Paolo, 2009. "Monetary Asset Substitution in the Euro Area," MPRA Paper 17878, University Library of Munich, Germany.

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