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A systemic approach to modelling and estimating demand for money(ies)

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This article uses a consumer theory-based systemic approach to model the demand for monetary liquid asset holdings in Chile. We implement the suggestions and caveats of aggregation theory for the estimation of a demand system for liquid assets (monies) in static, dynamic and time-varying parameters setups. Our results are robust and theoretically consistent with consumer theory restrictions, as a system derived from a utility maximizing framework and a quasi concave utility function. In our estimations, we find stability of interest rate elasticities, in contrast to previous related literature. We also document evidence that long (short) maturity rates are associated to less (more) liquid assets.

Keywords: E43; E52; E58; LAIDS; SURE; monetary policy; money demand; semi-nonparametric; time varying parameters

Document Type: Research Article


Affiliations: 1: Research Department,Central Bank of Chile, Santiago de Chile, Chile 2: Department of Economics,Pontificia Universidad Católica de Chile, Santiago, Chile

Publication date: 2013-06-01

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