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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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  • 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))

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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Bibliographic 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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Keywords: Demand for Money; Aggregation; Heterogeneity;

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References

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  1. 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, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(2), pages 1-23, April.
  2. Powell, James L. & Stoker, Thomas M., 1985. "The estimation of complete aggregation structures," Journal of Econometrics, Elsevier, Elsevier, vol. 30(1-2), pages 317-344.
  3. Lau, Lawrence J., 1982. "A note on the fundamental theorem of exact aggregation," Economics Letters, Elsevier, Elsevier, vol. 9(2), pages 119-126.
  4. Van Garderen, K. J. & Lee, K. & Pesaran M., 1998. "Cross-sectional Aggregation of Non-linear Models," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9803, Faculty of Economics, University of Cambridge.
  5. Jorgenson, Dale W & Slesnick, Daniel T & Stoker, Thomas M, 1988. "Two-Stage Budgeting and Exact Aggregation," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 6(3), pages 313-25, July.
  6. 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, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(2), pages 73-124, November.
  7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 153-61, January.
  8. Jorgenson, Dale W & Lau, Lawrence J & Stoker, Thomas M, 1980. "Welfare Comparison under Exact Aggregation," American Economic Review, American Economic Association, American Economic Association, vol. 70(2), pages 268-72, May.
  9. 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, Institute of Economic Policy Research (IEPR) 04.1, Institute of Economic Policy Research (IEPR).
  10. Hiroshi Fujiki & Casey B. Mulligan, 1996. "Production, Financial Sophistication, and the Demand for Money by Households and Firms," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 65-103, July.
  11. Hiroshi Fujiki & Casey B. Mulligan, 1996. "A Structural Analysis of Money Demand: Cross-Sectional Evidence from Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(2), pages 53-78, December.
  12. Lewbel, Arthur, 1992. "Aggregation with Log-Linear Models," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(3), pages 635-42, July.
  13. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(2), pages 271-291, March.
  14. Lewbel, Arthur, 1994. "Aggregation and Simple Dynamics," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 905-18, September.
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Cited by:
  1. Seitz, Franz & von Landesberger, Julian, 2010. "Household money holdings in the euro area: An explorative investigation," Working Paper Series, European Central Bank 1238, European Central Bank.

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