Money Demand and Equity Markets

22 Pages Posted: 27 May 2003

See all articles by Seth B. Carpenter

Seth B. Carpenter

Federal Reserve Board - Department of Monetary Affairs

Joe Lange

Cornerstone Research

Date Written: October 2002

Abstract

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

Carpenter, Seth B. and Lange, Joe, Money Demand and Equity Markets (October 2002). FEDS Working Paper No. 2003-03. Available at SSRN: https://ssrn.com/abstract=386840 or http://dx.doi.org/10.2139/ssrn.386840

Seth B. Carpenter

Federal Reserve Board - Department of Monetary Affairs ( email )

20th and C Streets, NW
Mailstop 60
Washington, DC 20551
United States
202-452-2385 (Phone)
202-452-2301 (Fax)

Joe Lange (Contact Author)

Cornerstone Research ( email )

1000 El Camino Real
Menlo Park, CA 94025-4327
United States
650-853-1660 (Phone)

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