The case for a financial approach to money demand
Pre-print, Working paper: The distribution of money across households is much more similar to the distribution of financial assets than to that of consumption levels, even controlling for life-cycle effects. 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 nancial assets can be explained by an incomplete-market model when frictions are introduced into financial markets. Money demand is modeled as a portfolio choice with a fixed transaction cost in financial markets.
Keywords JEL
Keywords
- Money demand
- Money distribution
- Heterogenous agents
Internal reference
- PSE Working Papers n°2008-56
URL of the HAL notice
Version
- 1