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Financial Market Participation and the Apparent Instability of Money Demand

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  • Dr. Samuel Reynard

Abstract

This paper uses multi-period cross-sectional data on financial assets holdings to shed light on the postwar stability of money demand in the United States. I first present a new measure of the evolution of financial market participation, by relating participation to the extensive margins of money demand, and quantify the influence of wealth on participation decisions. I then relate the increase in participation to the period of "missing money" and to the subsequent higher interest rate elasticity of monetary aggregates. The paper indicates that time series estimations of money demand relationships are inherently flawed and tend to inappropriately suggest instability.

Suggested Citation

  • Dr. Samuel Reynard, 2004. "Financial Market Participation and the Apparent Instability of Money Demand," Working Papers 2004-01, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2004-01
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2004/working_paper_2004_01
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    References listed on IDEAS

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    1. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, vol. 29(1), pages 97-112, March.
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    More about this item

    Keywords

    Demand; Financial Market Participation; Cross-Sections;
    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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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