Money demand is an economic theme, which has fascinated economists over the centuries and no unique result has been ever reached. Money demand, and money allocation in portfolio depend on the definition of money and wealth and on the possible combinations, depending on technology available and risk attitude. This paper surveys theoretical and empirical approaches to the theme and addresses it using a different estimation technique from traditional papers (i.e. fractional cointegration). Futures represent the widest and biggest innovation of financial markets; modern monetary economics should include financial innovation in the money demand function since it contributes to provide stability. More in details, we are interested in the relationship among (real) money holdings, income, the interest rate (on Federal Funds), and Futures, which is not instantaneous.
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Article provided by Department of Economic and Business Sciences, LUISS Guido Carli in its journal Economia, Societa', e Istituzioni.