A Microfounded Model of Money Demand Under Uncertainty, and some Empirical Evidence

Ingrid Groessl () and Artur Tarassow ()
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Ingrid Groessl: Universität Hamburg (University of Hamburg)

No 201802, Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics

Abstract: In this article we derive a microfounded model of money demand under uncertainty built on intertemporally optimizing risk-averse households. Deriving a complete solution of the optimization problem taking the intertemporal budget constraint into account where linearization procedures in our paper take a risky steady state as benchmark. The solution leads to ambiguous effects w.r.t. to the impact of capital market risk as well as inflation risk, which is due to the interplay of substitution and opposing income effects. The econometric results reveal that U.S. households increase their demand for money in response to positive changes in inflation risk and capital market risk, respectively, with both effects lasting permanently.

Keywords: Money Demand; Uncertainty; Inflation Risk; Capital Market Risk; Monetary Policy; Cointegration (search for similar items in EconPapers)
JEL-codes: C22 E41 E51 E58 G11 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2018-01
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_2_2018.pdf First version, 2018 (application/pdf)

Related works:
Working Paper: A Microfounded Model of Money Demand Under Uncertainty, and some Empirical Evidence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hep:macppr:201802

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