IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/1998-24.html
   My bibliography  Save this paper

The effect of stock prices on the demand for money market mutual funds

Author

Listed:
  • James P. Dow
  • Douglas W. Elmendorf

Abstract

During the 1990s, households have sharply increased the share of their portfolios held in equities and mutual funds and sharply reduced the share held in bank accounts. We show that this reallocation has substantially increased the impact of financial-market developments on the demand for money. Specifically, both increases and decreases in the Wilshire 5000 have boosted the demand for money funds during the 1990s, although they had little effect on money funds during the 1980s. The estimated effects in the 1990s are generally statistically significant and economically important.

Suggested Citation

  • James P. Dow & Douglas W. Elmendorf, 1998. "The effect of stock prices on the demand for money market mutual funds," Finance and Economics Discussion Series 1998-24, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:1998-24
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/1998/199824/199824abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/1998/199824/199824pap.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sean Collins & Cheryl L. Edwards, 1994. "An alternative monetary aggregate: M2 plus household holdings of bond and equity mutual funds," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 7-29.
    2. Choudhry, Taufiq, 1996. "Real stock prices and the long-run money demand function: evidence from Canada and the USA," Journal of International Money and Finance, Elsevier, vol. 15(1), pages 1-17, February.
    3. Arthur B. Kennickell & Martha Starr-McCluer & Annika E. Sunden, 1997. "Family Finance in the U.S.: Recent Evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 83(1), pages .1-24, January.
    4. Allen, Stuart D & Connolly, Robert A, 1989. "Financial Market Effects on Aggregate Money Demand: A Bayesian Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 158-175, May.
    5. Perron, P, 1993. "Erratum [The Great Crash, the Oil Price Shock and the Unit Root Hypothesis]," Econometrica, Econometric Society, vol. 61(1), pages 248-249, January.
    6. Estrella, Arturo & Mishkin, Frederic S., 1997. "Is there a role for monetary aggregates in the conduct of monetary policy?," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 279-304, October.
    7. Sean Collins & Cheryl L. Edwards, 1994. "An alternative monetary aggregate: M2 plus household holdings of bond and equity mutual funds," Proceedings, Federal Reserve Bank of St. Louis, issue Nov, pages 7-29.
    8. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bruce Morley, 2009. "A Comparison of Two Alternative Monetary Approaches to Exchange Rate Determination over the Long-Run," International Econometric Review (IER), Econometric Research Association, vol. 1(2), pages 63-76, April.
    2. Kauko, Karlo, 2005. "The demand for money market mutual funds," Bank of Finland Research Discussion Papers 14/2005, Bank of Finland.
    3. F. Cavalli & A. Naimzada & N. Pecora, 2022. "A stylized macro-model with interacting real, monetary and stock markets," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(1), pages 225-257, January.
    4. Mr. David Cook & Woon Gyu Choi, 2007. "Financial Market Risk and U.S. Money Demand," IMF Working Papers 2007/089, International Monetary Fund.
    5. Cronin, David, 2014. "The interaction between money and asset markets: A spillover index approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 185-202.
    6. repec:zbw:bofrdp:2005_014 is not listed on IDEAS
    7. John B. Carlson & Jeffrey C. Schwarz, 1999. "Effects of movements in equities prices on M2 demand," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-9.
    8. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hung, Ying-Shu & Lee, Chingnun & Chen, Pei-Fen, 2022. "China’s monetary policy and global stock markets: A new cointegration approach with smoothing structural changes," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 643-666.
    2. Massimo Caruso, 2006. "Stock market fluctuations and money demand in Italy, 1913-2003," Temi di discussione (Economic working papers) 576, Bank of Italy, Economic Research and International Relations Area.
    3. Matteo Mogliani, 2010. "Residual-based tests for cointegration and multiple deterministic structural breaks: A Monte Carlo study," Working Papers halshs-00564897, HAL.
    4. Bloch, Harry & Rafiq, Shuddhasattwa & Salim, Ruhul, 2015. "Economic growth with coal, oil and renewable energy consumption in China: Prospects for fuel substitution," Economic Modelling, Elsevier, vol. 44(C), pages 104-115.
    5. Shahbaz, Muhammad & Hoang, Thi Hong Van & Mahalik, Mantu Kumar & Roubaud, David, 2017. "Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis," Energy Economics, Elsevier, vol. 63(C), pages 199-212.
    6. Bosker, Maarten & Brakman, Steven & Garretsen, Harry & Schramm, Marc, 2008. "A century of shocks: The evolution of the German city size distribution 1925-1999," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 330-347, July.
    7. Mariam Camarero & Juan Sapena & Cecilio Tamarit, 2020. "Modelling Time-Varying Parameters in Panel Data State-Space Frameworks: An Application to the Feldstein–Horioka Puzzle," Computational Economics, Springer;Society for Computational Economics, vol. 56(1), pages 87-114, June.
    8. Joshy Easaw & Roberto Golinelli, 2022. "Professionals Inflation Forecasts: The Two Dimensions Of Forecaster Inattentiveness [“Sectoral and aggregate inflation dynamics in the euro area”]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 701-720.
    9. Mohsen Bahmani-Oskooee & Tsangyao Chang & Kuei-Chiu Lee, 2016. "Panel asymmetric nonlinear unit root test and PPP in Africa," Applied Economics Letters, Taylor & Francis Journals, vol. 23(8), pages 554-558, May.
    10. Bierens, H.J. & Broersma, L., 1991. "The relation between unemployment and interest rate : some international evidence," Serie Research Memoranda 0112, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    11. Nasreen, Samia & Anwar, Sofia & Ozturk, Ilhan, 2017. "Financial stability, energy consumption and environmental quality: Evidence from South Asian economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 1105-1122.
    12. Mishra, Vinod & Smyth, Russell, 2014. "Convergence in energy consumption per capita among ASEAN countries," Energy Policy, Elsevier, vol. 73(C), pages 180-185.
    13. Perron, Pierre & Wada, Tatsuma, 2016. "Measuring business cycles with structural breaks and outliers: Applications to international data," Research in Economics, Elsevier, vol. 70(2), pages 281-303.
    14. Boukraine, Wissem, 2020. "The finance-inequality nexus in the BRICS countries: evidence from an ARDL bound testing approach," MPRA Paper 101976, University Library of Munich, Germany.
    15. Claudio Morana, 2014. "Factor Vector Autoregressive Estimation of Heteroskedastic Persistent and Non Persistent Processes Subject to Structural Breaks," Working Papers 273, University of Milano-Bicocca, Department of Economics, revised May 2014.
    16. Saroja Selvanathan & E.A. Selvanathan & Brinda Viswanathan, 2009. "Causality between Foreign Direct Investment and Tourism : Empirical Evidence from India," Finance Working Papers 22944, East Asian Bureau of Economic Research.
    17. Wesam Salah Alaloul & Muhammad Ali Musarat & Muhammad Babar Ali Rabbani & Qaiser Iqbal & Ahsen Maqsoom & Waqas Farooq, 2021. "Construction Sector Contribution to Economic Stability: Malaysian GDP Distribution," Sustainability, MDPI, vol. 13(9), pages 1-26, April.
    18. Cem Ertur & Antonio Musolesi, 2017. "Weak and Strong Cross‐Sectional Dependence: A Panel Data Analysis of International Technology Diffusion," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 477-503, April.
    19. Shyh-Wei Chen, 2008. "Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-11.
    20. José A. Núñez & Carlos M. Urzúa, 1996. "The Mexican intertemporal budget constraint: Persistent signals of an eventual collapse," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 11(2), pages 167-180.

    More about this item

    Keywords

    Mutual funds; Stock - Prices;

    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:fip:fedgfe:1998-24. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    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.