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The effect of stock prices on the demand for money market mutual funds

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Author Info

  • James P. Dow, Jr.
  • Douglas W. Elmendorf

Abstract

During the 1990s, households have sharply increased the share of their portfolios held in equities and mutual funds and sharply reduced the share held in bank accounts. We show that this reallocation has substantially increased the impact of financial-market developments on the demand for money. Specifically, both increases and decreases in the Wilshire 5000 have boosted the demand for money funds during the 1990s, although they had little effect on money funds during the 1980s. The estimated effects in the 1990s are generally statistically significant and economically important.

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File URL: http://www.federalreserve.gov/pubs/feds/1998/199824/199824abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1998/199824/199824pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1998-24.

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Date of creation: 1998
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Handle: RePEc:fip:fedgfe:1998-24

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Related research

Keywords: Mutual funds ; Stock - Prices;

References

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  1. Arturo Estrella & Frederic S. Mishkin, 1996. "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?," NBER Working Papers 5845, National Bureau of Economic Research, Inc.
  2. Allen, Stuart D & Connolly, Robert A, 1989. "Financial Market Effects on Aggregate Money Demand: A Bayesian Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 158-75, May.
  3. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  4. Arthur B. Kennickell & Martha Starr-McCluer & Annika E. Sunden, 1997. "Family finances in the U.S.: recent evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-24.
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Cited by:
  1. John B. Carlson & Jeffrey C. Schwarz, 1999. "Effects of movements in equities prices on M2 demand," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-9.
  2. Cronin, David, 2014. "The interaction between money and asset markets: A spillover index approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 185-202.
  3. Kauko , Karlo, 2005. "The demand for money market mutual funds," Research Discussion Papers 14/2005, Bank of Finland.
  4. Bruce Morley, 2009. "A Comparison of Two Alternative Monetary Approaches to Exchange Rate Determination over the Long-Run," International Econometric Review (IER), Econometric Research Association, vol. 1(2), pages 63-76, April.
  5. David Cook & Woon Gyu Choi, 2007. "Financial Market Risk and U.S. Money Demand," IMF Working Papers 07/89, International Monetary Fund.
  6. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.

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