The Store-of-Value-Function of Money as a Component of Household Risk Management
We analyse how money as a store of value affects the decisions of a representative household under diversifiable and non-diversifiable risks. given that the central bank successfully stabilizes the rate of inflation at a low level. Assuming exponential utility allows us to derive an explicit relationship between optimal money holdings, the household's desire to tilt, smooth and stabilize consumption as well as minimize portfolio risk. In this context we also show how the correlation between stochastic labour income and stock returns impact the store-of-value function of money. Finally we prove that the store-of-value benefits of money holdings continue to hold even if we take riskless alternatives into account.
|Date of creation:||Dec 2006|
|Contact details of provider:|| Web page: https://www.wiso.uni-hamburg.de/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jiri Slacalek, 2006.
"International Wealth Effects,"
Discussion Papers of DIW Berlin
596, DIW Berlin, German Institute for Economic Research.
- A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Oxford University Press, vol. 37(3), pages 353-360.
- Miguel Lebre de Freitas, 2004.
"Currency Substitution, Portfolio Diversification and Money Demand,"
Econometric Society 2004 Latin American Meetings
263, Econometric Society.
- Miguel Lebre de Freitas & Francisco José Veiga, 2006. "Currency substitution, portfolio diversification, and money demand," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 719-743, August.
- Miguel Lebre de Freitas, 2004. "Currency Substitution, portfolio Diversification and Money Demand," NIPE Working Papers 9/2004, NIPE - Universidade do Minho.
- Miguel LEBRE DE FREITAS, "undated". "Currency Substitution, Portfolio Diversification and Money Demand," EcoMod2004 330600090, EcoMod.
- Lemke, Wolfgang & Greiber, Claus, 2005. "Money demand and macroeconomic uncertainty," Discussion Paper Series 1: Economic Studies 2005,26, Deutsche Bundesbank, Research Centre.
- Robert Holzmann & Steen Jorgensen, 2000.
"Social risk management : a new conceptual framework for social protection and beyond,"
Social Protection and Labor Policy and Technical Notes
21314, The World Bank.
- Robert Holzmann & Steen Jørgensen, 2001. "Social Risk Management: A New Conceptual Framework for Social Protection, and Beyond," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(4), pages 529-556, August.
- Barr, D G & Cuthbertson, Keith, 1991. "Neoclassical Consumer Demand Theory and the Demand for Money," Economic Journal, Royal Economic Society, vol. 101(407), pages 855-876, July.
- Choi, Woon Gyu & Oh, Seonghwan, 2003. " A Money Demand Function with Output Uncertainty, Monetary Uncertainty, and Financial Innovations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 685-709, October.
- Stracca, Livio, 2001.
"The functional form of the demand for euro area M1,"
Working Paper Series
0051, European Central Bank.
- Livio Stracca, 2003. "The Functional Form Of The Demand For Euro Area M1," Manchester School, University of Manchester, vol. 71(2), pages 172-204, 03.
- Farmer, Roger E A, 1997.
"Money in a Real Business Cycle Model,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 29(4), pages 568-611, November.
- Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
- Dutkowsky, Donald H & Foote, William G, 1992. "Intertemporal Substitution in Macroeconomics: Consumption, Labor Supply, and Money Demand," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 333-338, May.
- Isabel Correia & Pedro Teles, 1997.
"The optimal inflation tax,"
Discussion Paper / Institute for Empirical Macroeconomics
123, Federal Reserve Bank of Minneapolis.
- Christopher D. Carroll & Andrew A. Samwick, 1998.
"How Important Is Precautionary Saving?,"
The Review of Economics and Statistics,
MIT Press, vol. 80(3), pages 410-419, August.
- Wang, Ping & Yip, Chong K, 1992.
"Alternative Approaches to Money and Growth,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 24(4), pages 553-562, November.
- Saving, Thomas R, 1971. "Transactions Costs and the Demand for Money," American Economic Review, American Economic Association, vol. 61(3), pages 407-420, June.
- Carstensen, Kai, 2006.
"Stock market downswing and the stability of European monetary union money demand,"
Munich Reprints in Economics
19940, University of Munich, Department of Economics.
- Carstensen, Kai, 2006. "Stock Market Downswing and the Stability of European Monetary Union Money Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 395-402, October.
- Miles S. Kimball, 1989.
"Precautionary Saving in the Small and in the Large,"
NBER Working Papers
2848, National Bureau of Economic Research, Inc.
- Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
- Cuthbertson, Keith, 1997. "Microfoundations and the Demand for Money," Economic Journal, Royal Economic Society, vol. 107(443), pages 1186-1201, July.
- Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006.
"How Large Is the Housing Wealth Effect? A New Approach,"
NBER Working Papers
12746, National Bureau of Economic Research, Inc.
- Christopher D. Carroll & Misuzu Otsuka & Jirka Slacalek, 2006. "How Large Is the Housing Wealth Effect? A New Approach," Economics Working Paper Archive 535, The Johns Hopkins University,Department of Economics.
- Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jirka, 2006. "How large is the housing wealth effect? A new approach," CFS Working Paper Series 2006/35, Center for Financial Studies (CFS).
- Mizen, Paul, 1997. "Microfoundations for a Stable Demand for Money Function," Economic Journal, Royal Economic Society, vol. 107(443), pages 1202-1212, July.
- Rinaldi, Laura & Sanchis-Arellano, Alicia, 2006. "Household debt sustainability: what explains household non-performing loans? An empirical analysis," Working Paper Series 0570, European Central Bank.
- Lawrance, Emily C, 1995. "Consumer Default and the Life Cycle Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 939-954, November.
- Vegh, Carlos A., 1989. "The optimal inflation tax in the presence of currency substitution," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 139-146, July.
- Philippe Weil, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 367-383.
- Aizenman, Joshua, 1998. "Buffer stocks and precautionary savings with loss aversion," Journal of International Money and Finance, Elsevier, vol. 17(6), pages 931-947, December.
- Seth B. Carpenter & Joe Lange, 2003. "Money demand and equity markets," Finance and Economics Discussion Series 2003-03, Board of Governors of the Federal Reserve System (U.S.).
- Zhang, Junxi, 2000. "Inflation and Growth: Pecuniary Transactions Costs and Qualitative Equivalence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 1-12, February.
When requesting a correction, please mention this item's handle: RePEc:hep:macppr:200606. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ulrich Fritsche)
If references are entirely missing, you can add them using this form.