On Cash-in-Advance Models of Money Demand and Asset Pricing

Henning Bohn

Journal of Money, Credit and Banking, 1991, vol. 23, issue 2, 224-42

Abstract: This paper shows how a cash-in-advance model of money can be written in a way that combines a simple, yet empirically defensible, money demand function with an asset pricing equation that is similar to the standard barter-economy Euler equations. Return premia are determined as in the barter exchange model, except that a short-term, risk-free, nominal interest rate enters into the first-order conditions. In special cases, asset prices satisfy the barter-economy Euler equations exactly. In the empirical analysis, the interest rate factor adds some explanatory power, but both the barter and the monetary asset pricing model perform rather poorly. Copyright 1991 by Ohio State University Press.

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:23:y:1991:i:2:p:224-42

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