IDEAS home Printed from https://ideas.repec.org/a/bpj/germec/v26y2025i2p71-92n1003.html
   My bibliography  Save this article

A Re-Consideration of Money Demand Theory

Author

Listed:
  • Kapur Basant K.

    (37580 National University of Singapore , Singapore, Singapore)

Abstract

Portfolio models typically ignore precautionary transactions demands for liquid assets, and models of precautionary demands typically ignore asset rate-of-return risk. If asset-holders are risk-averse, however, both transactions risk and rate-of-return risk affect demands for both liquid and illiquid assets, even when the two risks are independent of each other. We demonstrate this in a four-asset framework, and show that our integrated treatment produces unexpected and instructive results and insights. For example, (a) an increase in the expected return to risky securities increases the demand for M1, even when M1 is used entirely for transactions purposes, (b) an increase in the variance of securities returns reduces the demand for M1, and (c) an increase in the asset-holders’ wealth reduces her demand for M1. A broader framework for the study of money demand is thus called for.

Suggested Citation

  • Kapur Basant K., 2025. "A Re-Consideration of Money Demand Theory," German Economic Review, De Gruyter, vol. 26(2), pages 71-92.
    • Handle: RePEc:bpj:germec:v:26:y:2025:i:2:p:71-92:n:1003
    DOI: 10.1515/ger-2024-0055
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/ger-2024-0055
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/ger-2024-0055?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    money demand; asset demands; non-separability; expected utility;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:germec:v:26:y:2025:i:2:p:71-92:n:1003. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.