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The Demand for Money, Near-Money, and Treasury Bonds

Author

Listed:
  • Arvind Krishnamurthy
  • Wenhao Li

Abstract

Bank-created money, shadow-bank money, and Treasury bonds all satisfy investors’ demand for liquidity. We measure the quantity of these forms of liquidity and their corresponding liquidity premium in a sample from 1934 to 2016, estimating the substitutability of these assets and the liquidity per unit delivered by each asset. Treasuries and bank transaction deposits are imperfect substitutes, in contrast to perfect substitutes found by Nagel (2016). Bank and nonbank non-transaction deposits are closer substitutes for Treasuries. Our empirical results inform theories of the monetary transmission mechanism running through shifts in asset supplies and models of the coexistence of the shadow banking and regulated banking system.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Arvind Krishnamurthy & Wenhao Li, 2023. "The Demand for Money, Near-Money, and Treasury Bonds," The Review of Financial Studies, Society for Financial Studies, vol. 36(5), pages 2091-2130.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:5:p:2091-2130.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac074
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    Cited by:

    1. Du, Wenxin & Hébert, Benjamin & Li, Wenhao, 2023. "Intermediary balance sheets and the treasury yield curve," Journal of Financial Economics, Elsevier, vol. 150(3).
    2. Lucas Herrenbrueck, Zijian Wang, 2023. "Interest Rates, Moneyness, and the Fisher Equation," Discussion Papers dp23-11, Department of Economics, Simon Fraser University.

    More about this item

    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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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