The Demand for Assets and Optimal Monetary Aggregation

Journal of Money, Credit and Banking, Forthcoming

34 Pages Posted: 16 Jul 2018

See all articles by Ali Jadidzadeh

Ali Jadidzadeh

University of Calgary

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: June 27, 2018

Abstract

This paper uses a highly disaggregated demand system to estimate the degree of substitutability among monetary assets and to address the issue of optimal monetary aggregation in the United States. We address the problems of dimensionality and nonlinearity, estimating a very detailed monetary asset demand system encompassing the full range of assets based on the locally flexible normalized quadratic (NQ) expenditure function. We treat the concavity property as a maintained hypothesis and provide evidence consistent with neoclassical microeconomic theory. Statistical tests reject the appropriateness of the aggregation assumptions for all the money measures published by the Federal Reserve as well as for a large number of groupings suggested by earlier studies. This supports and reinforces Barnett's (2016) assertion that we should employ the broadest M4 monetary aggregate published by the Center for Financial Stability.

Keywords: Barnett Critique; Divisia Monetary Aggregates; Demand for Money; Separability

JEL Classification: C3; C13; C51

Suggested Citation

Jadidzadeh, Ali and Serletis, Apostolos, The Demand for Assets and Optimal Monetary Aggregation (June 27, 2018). Journal of Money, Credit and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3203071

Ali Jadidzadeh

University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
16
Abstract Views
121
PlumX Metrics