On user costs of risy monetary assets

William Barnett and Shu Wu

No 200404, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

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 nonmonetary 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; Pricing kernel; CAPM (search for similar items in EconPapers)
JEL-codes: C22 C43 E41 G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-06, Revised 2004-06
New Economics Papers: this item is included in nep-fin and nep-mac
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Related works:
Chapter: On User Costs of Risky Monetary Assets (2011)
Journal Article: On user costs of risky monetary assets (2005)
Working Paper: On User Costs of Risky Monetary Assets (2004)
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