Money Demand in a Banking Time Economy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Money Demand in a Banking Time Economy ABSTRACTThe paper presents a theory of the demand for money that combines a special case of the shopping time exchange economy with the cash-in-advance framework. The model predicts that both higher inflation and financial innovation -that reduces the cost of credit -induce agents to substitute away from money towards exchange credit. This results in an interest elasticity of money that rises with the inflation rate rather than the constant elasticity found in standard shopping time specifications. A number of the key predictions of the banking time theory are tested using quarterly data for the US and Australia. We find cointegration empirical support for the model, with robustness checks and a comparison to a standard specification. JEL-Classification: O42, E13, E41, E51

Money Demand in an EU Accession Country: A VECM Study of Croatia

“…The main factors that have caused large shifts in money demand in developed countries have been the big, sudden financial deregulations of the 1980s (Gillman and Kejak, 2004;Benk et al, 2005). Such changes in financial sector productivity can be incorporated in money-demand functions to stabilize an otherwise seemingly unstable money-demand function, as Gillman and Otto (2003) show in time series estimations for the USA and Australia. However, deregulation has been gradual in Croatia and inclusion of financial sector variables in the money-demand function appears less necessary.…”

“…In particular, interest earning accounts with demand deposits that could be used in exchange, or 'exchange credit', were used to avoid the high inflation tax of the 1980s and seemed to cause a shift in money demand. Including proxies for financial service innovation led to renewed results of stable money-demand functions, even including the period of the big financial deregulations (Friedman and Schwartz, 1982;Gillman et al, 1997;Gillman and Otto, 2003).…”

A Comparison of Exchange Economies Within a Monetary Business Cycle

“…The values used in the robustness (Section 5 below) range between 0 and 1 but values above 0.5 are suspect in that they yield a marginal cost that rises at a diminishing rate, unusual if found in the industrial organization literature. The baseline value in the simulations is g = 0.21, as estimated in Gillman and Otto (2003) from the time-series estimation of US money demand that is derived from a similar credit technology.…”

“…The baseline calibration uses standard values that are found in the literature. For the more novel credit sector parameter A F , its value is set to 1.422 which follows from setting g = 0.21 (as estimated in Gillman and Otto (2003)). The table in Appendix A2 presents the values used in all three models.…”

Credit shocks in the financial deregulatory era: Not the usual suspects

“…Regarding the parameters of the exchange technology, the degree of diminishing return in the credit sector is set to γ = 0.21, which is Gillman and Otto's (2003) time series estimate of γ in a related model for the US (values of γ ∈ (0, 0.5) give a convex, upward-sloping, marginal cost curve). The share of cash purchases is fixed at a = 0.7 as in Gillman and Kejak (2005).…”