Abstract
We compare the empirical performance of a capital certain monetary services index and an index that is extended to contain assets with substantial interest rate risk, such as unit trusts, within a cointegration money demand framework for the UK. Technological changes and innovations have increased the liquidity of risky assets and recent developments in monetary aggregation theory have made it possible to account for interest rate risk in combination with risk aversion in the construction of monetary services indices. Coefficient estimates for all systems are consistent with theory and remarkably stable. No apparent gains are noted, however, by the inclusion of 'risky' assets.
| Original language | English |
|---|---|
| Article number | 3 |
| Journal | Topics in Macroeconomics |
| Volume | 4 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2004 |
Bibliographical note
Funding Information:∗Corresponding author: Thomas Elger, Department of Economics, Lund University, Box 7082, SE-220 07 Lund, Sweden. The authors wish to thank David Edgerton, William Barnett, Lisbeth Funding la Cour and Rakesh Bissoondeeal for valuable comments on earlier versions of this paper. The editor, David Romer, and two anonymous referees provided advice and detailed comments that substantially improved the quality of the paper. We have also obtained useful comments by participants at the 2002 Latin American meeting of the Econometric Society in São Paulo as well as staff at the Bank of England participating in a seminar held at the Bank in May 2002. Elger’s research has been, partly, funded by the Jan Wallander and Tom Hedelius Foundation (J98/14 and J03/19). The authors are grateful to the Nottingham Trent University Long-term Strategic Initiative for funding also provided for this research.
Keywords
- Monetary Aggregation
- Money Demand
- Risk
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)