Working Paper: NBER ID: w1796
Authors: James M. Poterba; Julio J. Rotemberg
Abstract: This paper studies household asset demands by allowing certain assets to contribute directly to utility. It estimates the parameters of an aggregate utility function which includes both consumption and liquidity services.These liquidity services depend on the level of various asset stocks. We apply these estimates to investigate the long- and short-run interest elasticities of demand for money, time deposits, and Treasury bills. We also examine the impact of open market operations on interest rates, and present new estimates of the welfare cost of inflation.
Keywords: money demand; utility function; asset demand; liquidity services
JEL Codes: E41; E44; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity (E41) | utility (L90) |
| assets yield utility (G19) | marginal utility of money (E41) |
| 100 basis point increase in inflation (E31) | 0.4% fall in consumption (D19) |
| changes in interest rates (E43) | asset demands (G32) |
| utility function parameters (D11) | consumer behavior (D19) |