Keywords: Money demand, equity markets
Abstract: Money demand in part reflects a portfolio decision.
As equities have become a significant store of household
wealth, it seems plausible that variations in equity markets
could affect money demand. We re-specify a standard money
demand equation to include stock market volatility and revisions
to analyst earnings projections. We find that these equity
market variables are statistically significant and reduce
the errors from money demand models.
Full paper (68 KB PDF)
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Last update: February 21, 2003