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Modeling U.S. Households' Demands for Liquid Wealth in an Era of Financial Change

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Author Info
Collins, Sean
Anderson, Richard

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Abstract

Money demand models overpredicted M2 growth in the United States from 1990 to 1993. The authors examine this overprediction using a model of households' demands for liquid wealth. The model is a dynamic generalization of the AIDS model of Angus Deaton and John Muellbauer (1980). The authors find that the own-price elasticity of money rose substantially after 1990. They also find important cross-price elasticities of money with respect to other liquid financial assets, notably with respect to mutual funds. Incorporating these and other features helps explain nearly 50 percent of the shortfall in M2 growth over the period in question.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 30 (1998)
Issue (Month): 1 (February)
Pages: 83-101
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Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:1:p:83-101

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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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.:
  1. Ng, Serena, 1995. "Testing for Homogeneity in Demand Systems When the Regressors Are Nonstationary," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 147-63, April-Jun. [Downloadable!] (restricted)
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  2. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    Other versions:
  3. Chong, Yock Y & Hendry, David F, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 671-90, August. [Downloadable!] (restricted)
  4. Duca, John V., 1990. "The impact of mortgage activity on recent demand deposit growth," Economics Letters, Elsevier, vol. 32(2), pages 157-161, February. [Downloadable!] (restricted)
  5. Anderson, G J, 1991. "Expenditure Allocation across Nondurables, Services, Durables and Savings: An Empirical Study of Separability in the Long Run," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 153-68, April-Jun. [Downloadable!] (restricted)
  6. Anderson, G J & Blundell, R W, 1982. "Estimation and Hypothesis Testing in Dynamic Singular Equation Systems," Econometrica, Econometric Society, vol. 50(6), pages 1559-71, November. [Downloadable!] (restricted)
  7. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers 928, Cowles Foundation, Yale University. [Downloadable!]
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  8. John V. Duca, 1993. "Should bond funds be included in M2?," Research Paper 9321, Federal Reserve Bank of Dallas. [Downloadable!]
  9. MacKinnon, James G, 1994. "Approximate Asymptotic Distribution Functions for Unit-Root and Cointegration Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 167-76, April.
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  10. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
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  11. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(2), pages 147-59, April.
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  12. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  13. Serletis, Apostolos, 1991. "The Demand for Divisia Money in the United States: A Dynamic Flexible Demand System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(1), pages 35-52, February. [Downloadable!] (restricted)
  14. Patrick I. Mahoney, 1988. "The recent behavior of demand deposits," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 195-208.
  15. William Barnett, 2005. "Monetary Aggregation," Macroeconomics 0503017, EconWPA. [Downloadable!]
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  16. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February. [Downloadable!] (restricted)
  17. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June. [Downloadable!] (restricted)
  18. Weale, Martin, 1986. "The Structure of Personal Sector Short-term Asset Holdings," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 54(2), pages 141-61, June.
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  1. Tomoe Moore & Christopher Green, 2005. "Other financial institutions' portfolio behaviour and policy implications: A study of India," International Economic Journal, Korean International Economic Association, vol. 19(4), pages 543-562, December. [Downloadable!] (restricted)
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