Financial Market Risk and U.S. Money Demand [electronic resource] / David Cook.
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TextSeries: IMF Working Papers; Working Paper ; No. 07/89Publication details: Washington, D.C. : International Monetary Fund, 2007Description: 1 online resource (33 p.)ISBN: 1451866534 :ISSN: 1018-5941Subject(s): Financial Market Risk | Financial Market | Financial Markets and the Macroeconomy | General Financial Markets: General (Includes Measurement and Data) | Money Market Mutual Funds | Money Market | Japan | United StatesAdditional physical formats: Print Version:: Financial Market Risk and U.S. Money DemandOnline resources: IMF e-Library | IMF Book Store Abstract: This paper examines empirically U.S. broad money demand emphasizing the role of financial market risk. We find that money demand rises with the liquidity risk of stock markets or the credit risk of corporate bond markets. After controlling for the effect of financial market risk, money demand becomes relatively stable over the last 35 years. At the sectoral level, household money holdings continue to be stable in a traditional model controlling for a decline in transactions costs for investing in mutual funds in the early 1990s. In contrast, business money holdings have been consistently (positively) associated with credit risk.
This paper examines empirically U.S. broad money demand emphasizing the role of financial market risk. We find that money demand rises with the liquidity risk of stock markets or the credit risk of corporate bond markets. After controlling for the effect of financial market risk, money demand becomes relatively stable over the last 35 years. At the sectoral level, household money holdings continue to be stable in a traditional model controlling for a decline in transactions costs for investing in mutual funds in the early 1990s. In contrast, business money holdings have been consistently (positively) associated with credit risk.
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