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The Case for a Financial Approach to Money Demand

Xavier Ragot ()

No 474, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: The distribution of money across households is much more similar to the distribution of financial assets than to that of consumption levels. This is a puzzle for theories which directly link money demand to consumption, such as cash-in-advance (CIA), money-in-the-utility function (MIUF) or shopping-time models. This paper shows that the joint distribution of money and financial assets can be explained by an incomplete-market model in which frictions are introduced into financial markets. Money demand is modeled as a portfolio choice with a fixed transaction cost in financial markets.

Date: 2009
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Related works:
Journal Article: The case for a financial approach to money demand (2014) Downloads
Working Paper: The case for a financial approach to money demand (2014)
Working Paper: The case for a financial approach to money demand (2014) Downloads
Working Paper: The Case for a Financial Approach to Money Demand (2010) Downloads
Working Paper: The case for a financial approach to money demand (2008) Downloads
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