Financial Market Risk and U.S. Money Demand
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Summary:
This paper examines empirically U.S. broad money demand emphasizing the role of financial market risk. We find that money demand rises with the liquidity risk of stock markets or the credit risk of corporate bond markets. After controlling for the effect of financial market risk, money demand becomes relatively stable over the last 35 years. At the sectoral level, household money holdings continue to be stable in a traditional model controlling for a decline in transactions costs for investing in mutual funds in the early 1990s. In contrast, business money holdings have been consistently (positively) associated with credit risk.
Series:
Working Paper No. 07/89
Subject:
Capital markets Credit risk Demand for money Investment Money demand Money markets United States
English
Publication Date:
April 1, 2007
ISBN/ISSN:
9781451866537/1018-5941
Stock No:
WPIEA2007089
Format:
Paper
Pages:
33
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