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Modeling U.S. Households' Demands for Liquid Wealth in an Era of Financial Change

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  • Collins, Sean
  • Anderson, Richard

Abstract

Money demand models overpredicted M2 growth in the United States from 1990 to 1993. The authors examine this overprediction using a model of households' demands for liquid wealth. The model is a dynamic generalization of the AIDS model of Angus Deaton and John Muellbauer (1980). The authors find that the own-price elasticity of money rose substantially after 1990. They also find important cross-price elasticities of money with respect to other liquid financial assets, notably with respect to mutual funds. Incorporating these and other features helps explain nearly 50 percent of the shortfall in M2 growth over the period in question.

Suggested Citation

  • Collins, Sean & Anderson, Richard, 1998. "Modeling U.S. Households' Demands for Liquid Wealth in an Era of Financial Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(1), pages 83-101, February.
    • Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:1:p:83-101
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    Cited by:

    1. Franz Seitz & Julian von Landesberger, 2014. "Household Money Holdings in the Euro Area: An Explorative Investigation," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(2), pages 83-115.
    2. Gillman, Max & Otto, Glenn, 2003. "Money demand in a banking time economy," HWWA Discussion Papers 254, Hamburg Institute of International Economics (HWWA).
    3. Caner, M. & Kilian, L., 2001. "Size distortions of tests of the null hypothesis of stationarity: evidence and implications for the PPP debate," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 639-657, October.
    4. Franz Seitz & Julian von Landesberger, 2012. "Household Money Demand: The Euro Area Case," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(III), pages 409-438, September.
    5. Tomoe Moore & Christopher Green & Victor Murinde, 2005. "Portfolio Behaviour in a Flow of Funds Model for the Household Sector in India," Journal of Development Studies, Taylor & Francis Journals, vol. 41(4), pages 675-702.
    6. Tomoe Moore & Christopher Green, 2005. "Other financial institutions' portfolio behaviour and policy implications: A study of India," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 543-562.

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