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“Risky” monetary aggregates for the UK and US

Jane M. Binner, Sajid Chaudhry, Logan Kelly and James L. Swofford

Journal of International Money and Finance, 2018, vol. 89, issue C, 127-138

Abstract: We extend the scope of monetary aggregation beyond capital certain assets that make up central bank data sets and identify groups of assets that form monetary aggregates composed of both capital certain and risky, capital uncertain, assets. We construct monetary aggregates for the US and UK using a superlative index and relax a key assumption of the Consumption Capital Asset Pricing Model (CCAPM), a one year planning horizon, by using forecasted returns on risky assets. Our new risky monetary aggregates perform well in VAR tests. We recommended exploring risky assets as providers of liquidity services in future research on this topic.

Keywords: Risk; Capital asset pricing model; Liquidity; Divisia money (search for similar items in EconPapers)
JEL-codes: E43 G12 C43 C51 (search for similar items in EconPapers)
Date: 2018
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