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On User Costs of Risky Monetary Assets

In: Financial Aggregation And Index Number Theory

Author

Listed:
  • William A. Barnett

    (University of Kansas, USA)

  • Shu Wu

Abstract

AbstractWe extend the monetary-asset user-cost risk adjustment of Barnett, Liu, and Jensen (1997) and their risk-adjusted Divisia monetary aggregates to the case of multiple non-monetary assets and intertemporal non-separability. Our model can generate potentially larger and more accurate CCAPM user-cost risk adjustments than those found in Barnett, Liu, and Jensen (1997). We show that the risk adjustment to a monetary asset's user cost can be measured easily by its beta. We show that any risky non-monetary asset can be used as the benchmark asset, if its rate of return is adjusted in accordance with our formula. These extensions could be especially useful, when own rates of return are subject to exchange rate risk, as in Barnett (2003).

Suggested Citation

  • William A. Barnett & Shu Wu, 2011. "On User Costs of Risky Monetary Assets," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 3, pages 85-105 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789814293105_0003
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    References listed on IDEAS

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    1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
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    7. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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    10. William A. Barnett & Melvin J. Hinich & Piyu Yue, 2011. "The Exact Theoretical Rational Expectations Monetary Aggregate," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 2, pages 53-84 World Scientific Publishing Co. Pte. Ltd..
    11. Barnett, William A. & Liu, Yi & Jensen, Mark, 1997. "Capm Risk Adjustment For Exact Aggregation Over Financial Assets," Macroeconomic Dynamics, Cambridge University Press, vol. 1(02), pages 485-512, June.
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    Citations

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    Cited by:

    1. William A. Barnett & Unja Chae & John W. Keating, 2011. "The Discounted Economic Stock of Money with VAR Forecasting," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 4, pages 107-150 World Scientific Publishing Co. Pte. Ltd..
    2. William A. Barnett & Marcelle Chauvet & Heather L. R. Tierney, 2011. "Measurement Error in Monetary Aggregates: A Markov Switching Factor Approach," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 7, pages 207-249 World Scientific Publishing Co. Pte. Ltd..
    3. William A. Barnett & Chang Ho Kwag, 2011. "Exchange Rate Determination from Monetary Fundamentals: An Aggregation Theoretic Approach," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 5, pages 151-166 World Scientific Publishing Co. Pte. Ltd..
    4. William Barnett & Jinan Liu, 2017. "User Cost of Credit Card Services under Risk with Intertemporal Nonseparability," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201705, University of Kansas, Department of Economics, revised Sep 2017.
    5. repec:ebl:ecbull:v:5:y:2004:i:13:p:1-9 is not listed on IDEAS
    6. William A. Barnett, 2011. "Multilateral Aggregation-Theoretic Monetary Aggregation over Heterogeneous Countries," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 6, pages 167-206 World Scientific Publishing Co. Pte. Ltd..
    7. Elger, Thomas & Jones, Barry E. & Nilsson, Birger, 2006. "Forecasting with Monetary Aggregates: Recent Evidence for the United States," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 428-446.
    8. Richard G. Anderson & Jason J. Buol, 2005. "Revisions to user costs for the Federal Reserve Bank of St. Louis monetary services indices," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 735-750.
    9. William Barnett & Marcelle Chauvet & Danilo Leiva-Leon & Liting Su, 2016. "The Credit-Card-Services Augmented Divisia Monetary Aggregates," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201604, University of Kansas, Department of Economics, revised Aug 2016.
    10. Barnett, William A. & Chauvet, Marcelle, 2008. "The End of the Great Moderation: “We told you so.”," MPRA Paper 11642, University Library of Munich, Germany.
    11. James J. Heckman & Apostolos Serletis, "undated". "Introduction to Internally Consistent Modeling, Aggregation, Inference, and Policy," Working Papers 2014-73, Department of Economics, University of Calgary, revised 29 Sep 2014.
    12. Barnett, William & Chauvet, Marcelle & Leiva-Leon, Danilo & Su, Liting, 2016. "Nowcasting nominal gdp with the credit-card augmented Divisia monetary aggregates," MPRA Paper 73246, University Library of Munich, Germany.
    13. repec:wsi:gjexxx:v:01:y:2012:i:01:n:s225136121250005x is not listed on IDEAS
    14. William A. Barnett & Marcelle Chauvet, 2011. "International Financial Aggregation and Index Number Theory: A Chronological Half-Century Empirical Overview," World Scientific Book Chapters,in: Financial Aggregation And Index Number Theory, chapter 1, pages 1-51 World Scientific Publishing Co. Pte. Ltd..
    15. William Barnett & Shu Wu, 2004. "Intertemporally non-separable monetary-asset risk adjustment and aggregation," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-9.
    16. Barnett, William A. & Chauvet, Marcelle, 2011. "How better monetary statistics could have signaled the financial crisis," Journal of Econometrics, Elsevier, vol. 161(1), pages 6-23, March.
    17. Barnett, William & Su, Liting, 2016. "Risk adjustment of the credit-card augmented Divisia monetary aggregates," MPRA Paper 73248, University Library of Munich, Germany.
    18. William A Barnett & Unja Chae & John W Keating, 2012. "Forecast Design In Monetary Capital Stock Measurement," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-53.
    19. , & Diewert, Erwin, 2014. "The Treatment of Financial Transactions in the SNA: A User Cost Approach," Economics working papers erwin_diewert-2014-8, Vancouver School of Economics, revised 20 Feb 2014.
    20. Binner, J.M. & Tino, P. & Tepper, J. & Anderson, R. & Jones, B. & Kendall, G., 2010. "Does money matter in inflation forecasting?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4793-4808.
    21. Travis D. Nesmith, 2005. "Solving stochastic money-in-the-utility-function models," Finance and Economics Discussion Series 2005-52, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Index Number Theory; Aggregation Theory; Money; Financial Assets; Monetary Aggregates;

    JEL classification:

    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • G1 - Financial Economics - - General Financial Markets

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