Monetary Aggregation and the Demand for Assets

JOURNAL OF MONEY, CREDIT AND BANKING, Vol. 29, No. 4, Part 1, November 1997

Posted: 1 Sep 1997

See all articles by Douglas Fisher

Douglas Fisher

North Carolina State University

Adrian R. Fleissig

California State University, Fullerton - Department of Economics

Abstract

In this paper we consider and illustrate a solution to the inter-related problems of monetary aggregation and estimation of money demand. The problem with the definition of money is that the relative prices of the monetary components fluctuate over time, rendering simple-sum aggregates inefficient. We apply Revealed Preference tests to the U.S. monthly data to determine admissible and separable components. These components are then aggregated using the Divisia technique. To deal with the problem of money demand, the dynamic Fourier expenditure system is used to provide estimates of the elasticities of substitution. These, while showing general substitution among the liquid assets studied, are quite variable over time. This finding underscores the inefficiency of both simple-sum aggregation and single-equation, log-linear money-demand estimation.

JEL Classification: E41, E51

Suggested Citation

Fisher, Douglas and Fleissig, Adrian R., Monetary Aggregation and the Demand for Assets. JOURNAL OF MONEY, CREDIT AND BANKING, Vol. 29, No. 4, Part 1, November 1997. Available at SSRN: https://ssrn.com/abstract=10755

Douglas Fisher (Contact Author)

North Carolina State University ( email )

Raleigh, NC 27695-8110
United States
919-515-2887 (Phone)
919-515-5613 (Fax)

Adrian R. Fleissig

California State University, Fullerton - Department of Economics ( email )

Fullerton, CA 92834
United States

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