Individual and Aggregate Money Demands

FEUNL Working Paper No. 557

26 Pages Posted: 16 Aug 2011

See all articles by Andre C. Silva

Andre C. Silva

Nova School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2011

Abstract

I construct a model in which money and bond holdings are consistent with individual decisions and aggregate variables such as production and interest rates. The agents are infinitely-lived, have constant-elasticity preferences, and receive a fraction of their income in money. Each agent solves a Baumol-Tobin money management problem. Markets are segmented because financial frictions make agents trade bonds for money at different times. Trading frequency, consumption, government decisions and prices are mutually consistent. An increase in inflation, for example, implies higher trading frequency, more bonds sold to account for seigniorage, and lower real balances.

Keywords: money demand, cash management, inventory problem, market segmentation

JEL Classification: E3, E4, E5

Suggested Citation

Silva, Andre C., Individual and Aggregate Money Demands (July 1, 2011). FEUNL Working Paper No. 557, Available at SSRN: https://ssrn.com/abstract=1910652 or http://dx.doi.org/10.2139/ssrn.1910652

Andre C. Silva (Contact Author)

Nova School of Business and Economics ( email )

Campus de Carcavelos
Carcavelos, 2775-405
Portugal

HOME PAGE: http://sites.google.com/view/andredecastrosilva

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