Risk Adjustment of the Credit-Card Augmented Divisia Monetary Aggregates

William Barnett and Liting Su ()
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Liting Su: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

No 67, Studies in Applied Economics from The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

Abstract: While credit cards provide transactions services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. However, economic aggregation theory and index number theory measure service flows and are based on microeconomic theory, not accounting. Barnett, Chauvet, Leiva-Leon, and Su (2016) derived the aggregation and index number theory needed to measure the joint services of credit cards and money. They derived and applied the theory under the assumption of risk neutrality. But since credit card interest rates are high and volatile, risk aversion may not be negligible. We extend the theory by removing the assumption of risk neutrality to permit risk aversion in the decision of the representative consumer.

Keywords: Credit Cards; Money; Credit; Aggregation; Monetary Aggregation; Index Number Theory; Divisia Index; Risk; Euler Equations; Asset Pricing (search for similar items in EconPapers)
JEL-codes: C43 C53 C58 E01 E40 E41 E51 E52 E58 G17 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: RISK ADJUSTMENT OF THE CREDIT-CARD AUGMENTED DIVISIA MONETARY AGGREGATES (2019)
Working Paper: Risk Adjustment of the Credit-Card Augmented Divisia Monetary Aggregates (2016)
Working Paper: Risk adjustment of the credit-card augmented Divisia monetary aggregates (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jhisae:0067

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