Money in the Utility Function: An Empirical Implementation

James Poterba and Julio Rotemberg

No 1796, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies household asset demands by allowing certain assets to contribute directly to utility. It estimates the parameters of an aggregate utility function which includes both consumption and liquidity services.These liquidity services depend on the level of various asset stocks. We apply these estimates to investigate the long- and short-run interest elasticities of demand for money, time deposits, and Treasury bills. We also examine the impact of open market operations on interest rates, and present new estimates of the welfare cost of inflation.

Date: 1986-01
Note: EFG ME
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Published as Poterba, James M. and Julio J. Rotemberg."Money in the Utility Function: An Empirical Implementation," New Approaches to Monetary Economics, eds. W. Barnett and K. Singleton, Cambridge University Press, 1987. pp219-240
Published as New Approaches to Monetary Economics, edited by William A. Barnett and Kenneth J. Singelton, pp. 219-240 New York: Cambridge University Press, 1987.

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