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On user costs of risy monetary assets

Author

Listed:
  • William Barnett

    (Department of Economics, The University of Kansas)

  • Shu Wu

    (Department of Economics, The University of Kansas)

Abstract

We 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 nonmonetary 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 Barnett & Shu Wu, 2004. "On user costs of risy monetary assets," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200404, University of Kansas, Department of Economics, revised Jun 2004.
  • Handle: RePEc:kan:wpaper:200404
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    File URL: http://www.ku.edu/~bgju/2004Papers/200404Barnett-Wu.pdf
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    References listed on IDEAS

    as
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    2. William Barnett & Apostolos Serletis & W. Erwin Diewert, 2005. "The Theory of Monetary Aggregation (book front matter)," Macroeconomics 0511008, University Library of Munich, Germany.
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    6. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
    7. William Barnett, 2005. "Monetary Aggregation," Macroeconomics 0503017, University Library of Munich, Germany.
    8. William A. Barnett & Yi Liu, 2000. "Beyond the Risk-neutral Utility Function," Palgrave Macmillan Books, in: Michael T. Belongia & Jane M. Binner (ed.), Divisia Monetary Aggregates, chapter 1, pages 11-27, Palgrave Macmillan.
    9. 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..
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    More about this item

    Keywords

    User costs; Monetary Aggregation; Risk; Pricing kernel; CAPM;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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