U.S. flag

An official website of the United States government

Skip Header


A Longitudinal Analysis of the Stability of Household Money Demand

Written by:
Working Paper Number SEHSD-WP2011-34

Abstract

Past aggregate time-series studies, conducted under the assumption of a representative economic agent, frequently show that the demand for narrowly defined M1, especially non-interest-yielding demand deposit, is unstable during periods of financial innovations. Whether this is longitudinally the case among life-cycle savers is unclear. This study utilizes longitudinal data to take another look and find that volatility in the demand for non-interest-earning checking accounts in the mid and late 1990s is attributable solely to the portion held for the transactions motive. When the conventional Baumol-Tobin model is extended to include human capital and family formation variables representing the life-cycle motive, equilibrium money demand is a stable function of both economic and demographic variables.

Page Last Revised - December 16, 2021
Is this page helpful?
Thumbs Up Image Yes Thumbs Down Image No
NO THANKS
255 characters maximum 255 characters maximum reached
Thank you for your feedback.
Comments or suggestions?

Top

Back to Header