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The UK Personal Sector Demand for Risky Money

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Author Info

  • Binner, Jane

    ()
    (University of Sheffield)

  • Elger, Thomas

    (Department of Economics, Lund University)

Abstract

This study compares the empirical performance of a capital certain Divisia index and an index that is extended to contain assets with substantial interest rate risk, such as unit trusts, within a cointegration money demand framework. Financial innovations have increased the liquidity of risky assets and recent developments in monetary aggregation theory have made it possible to account for interest rate risk in combination with risk aversion in the construction of monetary services indices. The coefficient estimates for both the capital certain and risky systems are consistent with theory and remarkably stable.

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Bibliographic Info

Paper provided by Lund University, Department of Economics in its series Working Papers with number 2002:9.

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Length: 36 pages
Date of creation: 11 Mar 2002
Date of revision:
Publication status: Published in Topics in Macroeconomics, 2004.
Handle: RePEc:hhs:lunewp:2002_009

Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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Keywords: Divisia; Risk; Money Demand;

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References

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  1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  2. Hendry, David F, 1980. "Econometrics-Alchemy or Science?," Economica, London School of Economics and Political Science, vol. 47(188), pages 387-406, November.
  3. Barnett, William A. & Jonas, Andrew B., 1983. "The Muntz-Szatz demand system : An application of a globally well behaved series expansion," Economics Letters, Elsevier, vol. 11(4), pages 337-342.
  4. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-97, August.
  5. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  6. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
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  10. William Barnett & Melvin J. Hinich & Piyu Yue, 2012. "The Exact Theoretical Rational Expectations Monetary Aggregate," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201229, University of Kansas, Department of Economics, revised Sep 2012.
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  12. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  13. Drake, Leigh & Fleissig, Adrian R & Mullineux, Andy, 1999. "Are "Risky Assets" Substitutes for "Monetary Assets"?," Economic Inquiry, Western Economic Association International, vol. 37(3), pages 510-26, July.
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  16. Milton Friedman & Anna Jacobson Schwartz, 1970. "Monetary Statistics of the United States: Estimates, Sources, Methods," NBER Books, National Bureau of Economic Research, Inc, number frie70-1, octubre-d.
  17. Philip Hans Franses, 2001. "How to deal with intercept and trend in practical cointegration analysis?," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 577-579.
  18. Michael T. Belongia & K. Alec Chrystal, 1989. "An admissible monetary aggregate for the United Kingdom," Working Papers 1989-007, Federal Reserve Bank of St. Louis.
  19. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, vol. 16(05), pages 740-778, October.
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  22. William A. Barnett & Yi Liu, 1996. "Beyond the Risk Neutral Utility Function," Macroeconomics 9602001, EconWPA.
  23. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
  24. Drake, Leigh & Mills, Terence C, 2001. "A New Empirical Weighted Monetary Aggregate for the UK," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 217-34, July.
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  26. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  27. Richard G. Anderson & Barry Jones & Travis Nesmith, 1996. "Monetary aggregation theory and statistical index numbers," Working Papers 1996-007, Federal Reserve Bank of St. Louis.
  28. Belongia, Michael T, 1996. "Measurement Matters: Recent Results from Monetary Economics Reexamined," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1065-83, October.
  29. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-25, November.
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  31. repec:cup:macdyn:v:4:y:2000:i:2:p:197-221 is not listed on IDEAS
  32. Paul Fisher & Suzanne Hudson & Mahmood Pradhan, 1993. "Divisia Indices for Money: An Appraisal of Theory and Practice," Bank of England working papers 9, Bank of England.
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Citations

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Cited by:
  1. Elger, Thomas, 2002. "The Demand for Monetary Assets in the UK; a Locally Flexible Demand System Analysis," Working Papers 2002:6, Lund University, Department of Economics.
  2. Hjelm, Goran & Johansson, Martin W., 2005. "A Monte Carlo study on the pitfalls in determining deterministic components in cointegrating models," Journal of Macroeconomics, Elsevier, vol. 27(4), pages 691-703, December.
  3. Binner, Jane & Elger, Thomas & de Peretti, Philipe, 2002. "Is UK Risky Money Weakly Separable? A Stochastic Approach," Working Papers 2002:13, Lund University, Department of Economics.

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