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Monetary policy and monetary asset substitution

Author

Listed:
  • Jones, Barry E.
  • Fleissig, Adrian R.
  • Elger, Thomas
  • Dutkowsky, Donald H.

Abstract

This paper shows that changing the target Federal Funds rate induces changes in relative user costs of monetary assets. Estimated Morishima elasticities of substitution from the Fourier Flexible form reveal greater substitution from transactions assets and savings deposits into small time deposits than into retail money market mutual funds.

Suggested Citation

  • Jones, Barry E. & Fleissig, Adrian R. & Elger, Thomas & Dutkowsky, Donald H., 2008. "Monetary policy and monetary asset substitution," Economics Letters, Elsevier, vol. 99(1), pages 18-22, April.
    • Handle: RePEc:eee:ecolet:v:99:y:2008:i:1:p:18-22
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    References listed on IDEAS

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    1. Leigh Drake & Adrian R. Fleissig & James L. Swofford, 2003. "A Semi--nonparametric Approach to the Demand for UK Monetary Assets," Economica, London School of Economics and Political Science, vol. 70(277), pages 99-120, February.
    2. Carlson, John B. & Hoffman, Dennis L. & Keen, Benjamin D. & Rasche, Robert H., 2000. "Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 345-383, October.
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    5. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-888, September.
    6. George R. Moore & Richard D. Porter & David H. Small, 1990. "Modeling the disaggregated demands for M2 and M1: the U.S. experience in the 1980s," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 21-112.
    7. Douglas Fisher & Adrian R. Fleissig & Apostolos Serletis, 2006. "An Empirical Comparison of Flexible Demand System Functional Forms," World Scientific Book Chapters, in: Money And The Economy, chapter 13, pages 247-277, World Scientific Publishing Co. Pte. Ltd..
    8. William A. Barnett, 2000. "The User Cost of Money," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 6-10, Emerald Group Publishing Limited.
    9. William A. Barnett, 2003. "Aggregation-Theoretic Monetary Aggregation over the Euro Area, when Countries are Heterogeneous," Macroeconomics 0309018, University Library of Munich, Germany.
    10. Lee A. Craig & Douglas Fisher, 1997. "The Demand for Money," Palgrave Macmillan Books, in: The Integration of the European Economy, 1850–1913, chapter 7, pages 160-186, Palgrave Macmillan.
    11. 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.
    12. Fisher, Douglas & Fleissig, Adrian R, 1997. "Monetary Aggregation and the Demand for Assets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 458-475, November.
    13. Livio Stracca, 2004. "Does Liquidity Matter? Properties of a Divisia Monetary Aggregate in the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(3), pages 309-331, July.
    14. Davis, George C & Gauger, Jean, 1996. "Measuring Substitution in Monetary-Asset Demand Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(2), pages 203-208, April.
    15. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    16. Jones, Barry E. & Dutkowsky, Donald H. & Elger, Thomas, 2005. "Sweep programs and optimal monetary aggregation," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 483-508, February.
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    Cited by:

    1. Fleissig, Adrian R. & Jones, Barry E., 2015. "The impact of commercial sweeping on the demand for monetary assets during the Great Recession," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 412-422.
    2. Jin, Man, 2018. "Measuring substitution in China's monetary-assets demand system," China Economic Review, Elsevier, vol. 50(C), pages 117-132.
    3. Anderson, Richard G. & Duca, John V. & Fleissig, Adrian R. & Jones, Barry E., 2019. "New monetary services (Divisia) indexes for the post-war U.S," Journal of Financial Stability, Elsevier, vol. 42(C), pages 3-17.
    4. Rakesh K. Bissoondeeal & Barry E. Jones & Jane M. Binner & Andrew W. Mullineux, 2010. "Household‐Sector Money Demand For The Uk," Manchester School, University of Manchester, vol. 78(s1), pages 90-113, September.
    5. Fleissig, Adrian R. & Jones, Barry E., 2023. "U.K. household-sector money demand during Brexit and the pandemic," Economic Modelling, Elsevier, vol. 123(C).
    6. Zagaglia, Paolo, 2009. "Monetary Asset Substitution in the Euro Area," MPRA Paper 17878, University Library of Munich, Germany.

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