Money Demand and Equity Markets
22 Pages Posted: 27 May 2003
Date Written: October 2002
Money demand in part reflects a portfolio decision. As equities have become a significant store of household wealth, it seems plausible that variations in equity markets could affect money demand. We re-specify a standard money demand equation to include stock market volatility and revisions to analyst earnings projections. We find that these equity market variables are statistically significant and reduce the errors from money demand models.
Keywords: Money demand, equity markets
JEL Classification: E41, E50
Suggested Citation: Suggested Citation