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Money Demand: Theories And Estimation Methods. A Fractional Cointegration Application

Author

Listed:
  • Anna Conte

    (LUISS Guido Carli e Universita' di Tor Vergata - Roma)

  • Chiara Oldani

    (LUISS Guido Carli e ISAE)

Abstract

Money demand is an economic theme, which has fascinated economists over the centuries and no unique result has been ever reached. Money demand, and money allocation in portfolio depend on the definition of money and wealth and on the possible combinations, depending on technology available and risk attitude. This paper surveys theoretical and empirical approaches to the theme and addresses it using a different estimation technique from traditional papers (i.e. fractional cointegration). Futures represent the widest and biggest innovation of financial markets; modern monetary economics should include financial innovation in the money demand function since it contributes to provide stability. More in details, we are interested in the relationship among (real) money holdings, income, the interest rate (on Federal Funds), and Futures, which is not instantaneous.

Suggested Citation

  • Anna Conte & Chiara Oldani, 2006. "Money Demand: Theories And Estimation Methods. A Fractional Cointegration Application," Economia, Societa', e Istituzioni, Dipartimento di Economia e Finanza, LUISS Guido Carli, vol. 0(3).
    • Handle: RePEc:lui:rivesi:1831
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    References listed on IDEAS

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    1. G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 727-748.
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    4. William A. Barnett, 2000. "Which Road Leads to Stable Money Demand?," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 577-592, Emerald Group Publishing Limited.
    5. Ms. Catharina J. Hooyman, 1993. "The Use of Foreign Exchange Swaps by Central Banks: A Survey," IMF Working Papers 1993/064, International Monetary Fund.
    6. Serge Jeanneau & Marian Micu, 2003. "Volatility and derivatives turnover: a tenuous relationship," BIS Quarterly Review, Bank for International Settlements, March.
    7. Oldani, Chiara & Savona, Paolo, 2005. "Derivatives, Fiscal Policy and Financial Stability," MPRA Paper 36199, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    money demand; futures; time series; fractional cointegration; spectral analysis;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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