On User Costs of Risky Monetary Assets

William Barnett and Shu Wu

Chapter 3 in Financial Aggregation and Index Number Theory, 2011, pp 85-105 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe 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: Index Number Theory; Aggregation Theory; Money; Financial Assets; Monetary Aggregates (search for similar items in EconPapers)
Date: 2011
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Related works:
Journal Article: On user costs of risky monetary assets (2005)
Working Paper: On user costs of risy monetary assets (2004)
Working Paper: On User Costs of Risky Monetary Assets (2004)
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