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Aggregate and Household Demand for Money: Evidence from Public Opinion Survey on Household Financial Assets and Liabilities

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Author Info
Hiroshi Fujiki (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: ippei.fujiwara@boj.or.jp))
Cheng Hsiao (International Department, Bank of Japan (E-mail: yasuo.hirose@boj.or.jp))

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Abstract

We use data from Public Opinion Surveys on Household Financial Assets and Liabilities from 1991 to 2002 to investigate the issues of unobserved heterogeneity among cross-sectional units and stability of Japanese aggregate money demand function. Conditions that permit individual data and aggregate data to be modeled under one consistent format are given. Alternative definitions of money are explored through year-by-year cross-sectional estimates of Fujiki-Mulligan (1996) household money demand model. We find that using M3 appears to be broadly consistent with time series estimates using the aggregates constructed from the micro data. The results appear to support the existence of a stable money demand function for Japan. The estimated income elasticity for M3 is about 0.68 and five year bond interest rate elasticity is about -0.124.

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Publisher Info
Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 08-E-17.

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Date of creation: Jul 2008
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Handle: RePEc:ime:imedps:08-e-17

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Related research
Keywords: Demand for Money; Aggregation; Heterogeneity;

Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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References listed on IDEAS
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. Jorgenson, Dale W & Slesnick, Daniel T & Stoker, Thomas M, 1988. "Two-Stage Budgeting and Exact Aggregation," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 313-25, July.
  2. Cheng Hsiao & Yan Shen & Hiroshi Fujiki, 2004. "Aggregate vs Disaggregate Data Analysis — A Paradox in the Estimation of a Money Demand Function of Japan Under the Low Interest Rate Policy," IEPR Working Papers 04.1, Institute of Economic Policy Research (IEPR). [Downloadable!]
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  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Powell, James L. & Stoker, Thomas M., 1985. "The estimation of complete aggregation structures," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 317-344. [Downloadable!] (restricted)
  5. Lewbel, Arthur, 1992. "Aggregation with Log-Linear Models," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 635-42, July. [Downloadable!] (restricted)
  6. Fujiki, Hiroshi & Hsiao, Cheng & Shen, Yan, 2002. "Is There a Stable Money Demand Function under the Low Interest Rate Policy? A Panel Data Analysis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(2), pages 1-23, April. [Downloadable!]
  7. Lewbel, Arthur, 1994. "Aggregation and Simple Dynamics," American Economic Review, American Economic Association, vol. 84(4), pages 905-18, September. [Downloadable!] (restricted)
  8. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March. [Downloadable!] (restricted)
  9. Hiroshi Fujiki & Etsuro Shioji, 2006. "Bank Health Concerns, Low Interest Rates, and Money Demand: Evidence from the Public Opinion Survey on Household Financial Assets and Liabilities," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(2), pages 73-124, November. [Downloadable!]
  10. Lau, Lawrence J., 1982. "A note on the fundamental theorem of exact aggregation," Economics Letters, Elsevier, vol. 9(2), pages 119-126. [Downloadable!] (restricted)
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