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Neoclassical Consumer Demand Theory and the Demand for Money

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  • Barr, D G
  • Cuthbertson, Keith

Abstract

M. Friedman (1956) suggests that the demand for money should be analyzed in terms of consumer demand theory, although often the interpretation of empirical results from studies using aggregate data appears to be in terms of the "motives approach" (i.e., transactions, precautionary, and speculative motives). The authors develop Friedman's ideas within an explicit model of consumer theory and find that they provide a consistent framework for analyzing portfolio choice and offer greater insights into results from aggregate studies of the demand for money than the motives approach. In particular, the authors provide a new interpretation of the role of nominal interest rates, inflation, and a Hicksian measure of wealth in the demand for money function. Copyright 1991 by Royal Economic Society.

Suggested Citation

  • Barr, D G & Cuthbertson, Keith, 1991. "Neoclassical Consumer Demand Theory and the Demand for Money," Economic Journal, Royal Economic Society, vol. 101(407), pages 855-876, July.
    • Handle: RePEc:ecj:econjl:v:101:y:1991:i:407:p:855-76
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    Cited by:

    1. David Blake, 2004. "Modelling the composition of personal sector wealth in the UK," Applied Financial Economics, Taylor & Francis Journals, vol. 14(9), pages 611-630.
    2. Eduardo Pozo, 2000. "Government Financing and Interest Rates in a Three Assets Sidrauski-based Model," Macroeconomics 0004017, University Library of Munich, Germany.
    3. Chris Allen & Katerina Smidkova, 2003. "Voucher Privatization, Households´ Demand for Consumption Goods and Financial Assets and Implications for Macroeconomic Policy," Macroeconomics 0303013, University Library of Munich, Germany.
    4. Mathias Klein, 2015. "Inequality and household debt: a panel cointegration analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(2), pages 391-412, May.
    5. Christopher J. Green & Victor Murinde, 2003. "Flow of funds: implications for research on financial sector development and the real economy," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 1015-1036.
    6. Moore, Tomoe & Green, Christopher J. & Murinde, Victor, 2006. "Financial sector reforms and stochastic policy simulations: A flow of funds model for India," Journal of Policy Modeling, Elsevier, vol. 28(3), pages 319-333, April.
    7. Bonizzi, Bruno, 2017. "Institutional investors’ allocation to emerging markets: A panel approach to asset demand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 47-64.
    8. Christopher Adam, 2000. "The Transactions Demand for Money in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 3(3), pages 33-53, December.
    9. Ingrid Groessl & Ulrich Fritsche, 2006. "The Store-of-Value-Function of Money as a Component of Household Risk Management," Macroeconomics and Finance Series 200606, University of Hamburg, Department of Socioeconomics.
    10. Blake, David, 2003. "Modelling the composition of personal sector wealth in the United Kingdom," LSE Research Online Documents on Economics 24866, London School of Economics and Political Science, LSE Library.
    11. Lang, Oliver, 1995. "Steuersubventionen und Ersparnisbildung in Lebensversicherungen," ZEW Discussion Papers 95-13, ZEW - Leibniz Centre for European Economic Research.
    12. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
    13. Smith, Clare & Hall, Stephen & Mabey, Nick, 1995. "Econometric modelling of international carbon tax regimes," Energy Economics, Elsevier, vol. 17(2), pages 133-146, April.
    14. Anderson, Richard G. & Duca, John V. & Fleissig, Adrian R. & Jones, Barry E., 2019. "New monetary services (Divisia) indexes for the post-war U.S," Journal of Financial Stability, Elsevier, vol. 42(C), pages 3-17.
    15. T. van der Valk, 2019. "Quid pro quo: the institutional environment and the allocation of household wealth," Working Papers 19-25, Utrecht School of Economics.
    16. Adam, Christopher, 1999. "Financial Liberalisation and Currency Demand in Zambia," Journal of African Economies, Centre for the Study of African Economies, vol. 8(3), pages 268-306, October.
    17. Christopher S. Adam, 1999. "Asset Portfolios and Credit Rationing: Evidence from Kenya," Economica, London School of Economics and Political Science, vol. 66(261), pages 97-117, February.
    18. Sanvi Avouyi-Dovi & Christian Pfister & Franck Sédillot, 2019. "French Households’ Portfolio: The Financial Almost Ideal Demand System Appraisal," Working papers 728, Banque de France.
    19. Tomoe Moore & Christopher Green, 2005. "Other financial institutions' portfolio behaviour and policy implications: A study of India," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 543-562.
    20. Fleissig, Adrian R. & Jones, Barry E., 2023. "U.K. household-sector money demand during Brexit and the pandemic," Economic Modelling, Elsevier, vol. 123(C).
    21. Adrian R. Fleissig & James L. Swofford, 2023. "Habit persistence in assets demand," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 975-985, January.

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