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Financial Market Effects on Aggregate Money Demand: A Bayesian Analysis

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  • Allen, Stuart D
  • Connolly, Robert A

Abstract

This paper evaluates the extent to which aggregate data yield robust inferences about the linkages between financial market effects and aggregate M1 and M2 holdings. In particular, the authors investigate whether stock market returns, stock market volume, and a new brokerage costs measure affect money demand. They employ recent advances in Bayesian econometric methods to control for model specification uncertainty, and provide a complete sensitivity analysis of their results to alternative prior distributions. The impact of nonstationarity on inferences is briefly explored with an error correction model. Copyright 1989 by Ohio State University Press.

Suggested Citation

  • Allen, Stuart D & Connolly, Robert A, 1989. "Financial Market Effects on Aggregate Money Demand: A Bayesian Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 158-175, May.
    • Handle: RePEc:mcb:jmoncb:v:21:y:1989:i:2:p:158-75
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    Cited by:

    1. Simon Neaime, 2000. "A Perspective on the Future Dollar-Euro Exchange Rate: Implications for the Peripheral Mediterranean Countries," Working Papers 2032, Economic Research Forum, revised 10 2000.
    2. Rup Singh, 2015. "Forces of economic growth in China, India, and other Asian countries," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 29(1), pages 62-81, May.
    3. Wang, Ling, 2022. "The dynamics of money supply determination under asset purchase programs: A market-based versus a bank-based financial system," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    4. Neil R. Ericsson, 2008. "The Fragility of Sensitivity Analysis: An Encompassing Perspective," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 895-914, December.
    5. 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.
    6. James P. Dow & Douglas W. Elmendorf, 1998. "The effect of stock prices on the demand for money market mutual funds," Finance and Economics Discussion Series 1998-24, Board of Governors of the Federal Reserve System (U.S.).

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