Financial innovation and regional money

Jun Nagayasu

Applied Economics, 2012, vol. 44, issue 35, 4617-4629

Abstract: This article studies the effect that financial innovation, which has been very common in recent years, has on money. Using Japanese regional data and the money demand specification, we first provide evidence of instability in the simple money-output relationship. However, when this relationship is extended to include a proxy for a comprehensive measure of financial innovation, the model is found to be stable. Furthermore, consistent with economic theory, evidence is obtained of financial innovation leading to decreased demand for liquid financial assets. In this respect, in Japan demand deposits seem to possess very similar characteristics to cash over recent years.

Date: 2012
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Working Paper: Financial Innovation and Regional Money (2011)
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DOI: 10.1080/00036846.2011.593500

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