On User Costs of Risky Monetary Assets

William Barnett () and Shu Wu
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Shu Wu: University of Kansas

Macroeconomics from EconWPA

Abstract: We extend the monetary-asset user-cost risk adjustment of Barnett, Liu, and Jensen (1997) and their risk-adjusted Divisia monetary aggregates to the case of multiple non-monetary assets and intertemporal non- separability. Our model can generate potentially larger and more accurate CCAPM user-cost risk adjustments than those found in Barnett, Liu, and Jensen (1997). We show that the risk adjustment to a monetary asset’s user cost can be measured easily by its beta. We show that any risky non-monetary asset can be used as the benchmark asset, if its rate of return is adjusted in accordance with our formula. These extensions could be especially useful, when own rates of return are subject to exchange rate risk, as in Barnett (2003).

Keywords: User costs; monetary aggregation; risk; intertemporal nonseparability; CCAPM; equity premium puzzle; Divisia monetary aggregates (search for similar items in EconPapers)
JEL-codes: E41 G12 C43 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-rmg
Date: 2004-06-24
Note: Type of Document - pdf; pages: 26. This paper is forthcoming in volume 1, number 1, of the new journal, the Annals of Finance.
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Related works:
Working Paper: On user costs of risy monetary assets (2004)
Journal Article: On user costs of risky monetary assets (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0406009

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