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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page The Effect of Stock Prices on the Demand for Money Market Mutual Funds
James P. Dow, Jr., and Douglas W. Elmendorf

Abstract: During the 1990s, households have sharply increased the share of their portfolios held in equities and mutual funds and sharply reduced the share held in bank accounts. We show that this reallocation has substantially increased the impact of financial-market developments on the demand for money. Specifically, both increases and decreases in the Wilshire 5000 have boosted the demand for money funds during the 1990s, although they had little effect on money funds during the 1980s. The estimated effects in the 1990s are generally statistically significant and economically important.

Keywords: Money, stock prices

Full paper (149 KB PDF) | Full paper (221 KB Postscript)

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Last update: June 8, 1998