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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Money Demand and Equity Markets
Seth Carpenter and Joe Lange

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.

Keywords: Money demand, equity markets

Full paper (68 KB PDF)

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Last update: February 21, 2003