Money demand in general equilibrium endogenous growth: estimating the role of a variable interest elasticity

Gillman, Max and Otto, Glen 2006. Money demand in general equilibrium endogenous growth: estimating the role of a variable interest elasticity. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University. Available at: http://business.cardiff.ac.uk/research/working-pap...

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Abstract

The paper presents and tests a theory of the demand for money that is derived from a general equilibrium, endogenous growth economy, which in effect combines a special case of the shopping time exchange economy with the cash-in-advance framework. The model predicts that both higher inflation and financial innovation - that reduces the cost of credit - induce agents to substitute away from money towards exchange credit. The implied interest elasticity of money demand rises with the inflation rate and financial innovation rather than being constant as is typical in shopping time specifications. Using quarterly data for the US and Australia, we find evidence of cointegration for the money demand model. This money demand stability results because of the extra series that capture financial innovation; included are robustness checks and comparison to a standard money demand specification.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	19 Mar 2016 23:13
URI:	https://orca.cardiff.ac.uk/id/eprint/43586

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