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Estimating the Liquidity of M2 Components in the Post-DIDMCA Era

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  • Dutkowsky, Donald H
  • Dunsky, Robert M

Abstract

This paper estimates the liquidity of M2 components within an intertemporal model of a representative household. A modification of Gerard A. Pfann and Bart Verspagen's (1989) asymmetric adjustment cost function measures liquidity cost. Generalized method of moments estimation of structural parameters using monthly data for December 1983-March 1993 reveals significant evidence of asymmetry toward decreasing asset holdings for all components except demand deposits. Estimated withdrawal costs for savings deposits, money market mutual funds, and small time deposits are small. Split sample estimations suggest greater liquidity in the more recent period. The results point to the effects of financial innovation in lowering withdrawal costs. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Dutkowsky, Donald H & Dunsky, Robert M, 1998. "Estimating the Liquidity of M2 Components in the Post-DIDMCA Era," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 244-257, April.
  • Handle: RePEc:oup:ecinqu:v:36:y:1998:i:2:p:244-57
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    Cited by:

    1. 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.

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