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Liquidity Preference as Rational Behaviour under Uncertainty
, 2006
"... An important concern of macroeconomic analysis is to what extent monetary policy affects the cash balance demanded at a certain level of nominal income and interest rates. Actually, the effectiveness of monetary policy depends on the interestrateelasticity of the liquidity demand, being useless un ..."
Abstract

Cited by 1 (1 self)
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An important concern of macroeconomic analysis is to what extent monetary policy affects the cash balance demanded at a certain level of nominal income and interest rates. Actually, the effectiveness of monetary policy depends on the interestrateelasticity of the liquidity demand, being useless under absolute liquidity preference, i.e. when the money demand is perfectly elastic. An actuarial approach is adopted in this paper for dealing with random income. Assuming investors confront liquidity constraints, a level of surplus exists which maximises expected value. Moreover, the optimal liquidity demand is expressed as a Value at Risk, and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the interestrateelasticity depends on the kind of risks and expectations. The more volatile (unstable) the economy, the greater the interestrateelasticity of the money demand. Moreover, part of the adjustment to reestablish the shortrun monetary equilibrium might be performed through volatility shocks.
An Actuarial Approach To ShortRun Monetary Equilibrium §
, 2007
"... The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interestrateelasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors confronti ..."
Abstract

Cited by 1 (1 self)
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The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interestrateelasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors confronting liquidity constraints and maintaining different expectations about risks. Under such circumstances, a level of surplus exists which maximises expected value. Moreover, when the distorted probability principle is introduced, the optimal liquidity demand is expressed as a Value at Risk and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the more unstable the economy, the greater the interestrateelasticity of the money demand. Moreover, for different parametric characterisation of risks, market parameters are expressed as the weighted average of sectorial or individual estimations, in such a way that multiple equilibria of the economy are allowed.
An Actuarial Approach To ShortRun Monetary Equilibrium§
, 2007
"... The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interestrateelasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors facing l ..."
Abstract
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The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interestrateelasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors facing liquidity constraints and maintaining different expectations about risks. Under such circumstances, a level of surplus exists which maximises expected value. Moreover, when the distorted probability principle is introduced, the optimal liquidity demand is expressed as a Value at Risk and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the more unstable the economy, the greater the interestrateelasticity of the money demand. Moreover, for different parametric characterisation of risks, market parameters are expressed as the weighted average of sectorial or individual estimations, in such a way that multiple equilibria of the economy are possible.
The Optimal Liquidity Principle with Restricted Borrowing
, 2008
"... A model is presented to characterise the (optimal) demand for cash balances in deregulated markets. After the model of James Tobin, 1958, net balances are determined in order to maximise the expected return of a certain portfolio combining risk and capital. Unlike the model of Tobin, however, the p ..."
Abstract
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A model is presented to characterise the (optimal) demand for cash balances in deregulated markets. After the model of James Tobin, 1958, net balances are determined in order to maximise the expected return of a certain portfolio combining risk and capital. Unlike the model of Tobin, however, the price of the underlying exposures are established in actuarial terms. Within this setting, the monetary equilibrium determines the rate at which a unit of capital is exchange by a unit of exposure to risk, or equivalently, it determines the market price of risk. In a Gaussian setting, such a price is expressed as a meantovolatility ratio and can then be regarded as an alternative measure to the Sharpe ratio. The effects of credit and monetary flows on money and security markets can be precisely described on these grounds. An alternative framework for the analysis of monetary policy is thus provided.
The MoneyDemand with Random Output and Limited Access to Debt
, 2007
"... The moneydemand of the economy is characterised, when national output is random and investors cannot attract any level of debt at any moment without incurring in additional costs. The optimal cashbalance is then expressed as the probabilityquantile (or ValueatRisk) of the series of capital retu ..."
Abstract
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The moneydemand of the economy is characterised, when national output is random and investors cannot attract any level of debt at any moment without incurring in additional costs. The optimal cashbalance is then expressed as the probabilityquantile (or ValueatRisk) of the series of capital returns on income, and in this way, it is explicitly determined by risk. As a consequence, the interestrateelasticity depends on the kind of risks and expectations, in such a way that the more unstable the economy, the greater the interestrateelasticity of the money demand. Therefore, the effectiveness of monetary policy is increased by diminishing the variability of output. Moreover, since flows of capital can affect the riskiness of financial securities by modifying the amounts involved in transactions, part of the adjustment to reestablish the shortrun monetary equilibrium may be performed through volatility shocks. Finally, for different parametrisations of risks, aggregated parameters are expressed as the weighted average of sectorial estimations, so that multiple equilibria of the economy are allowed.
Behaviour under Uncertainty §
, 2006
"... An important concern of macroeconomic analysis is how interest rates affect the cash balance demanded at a certain level of nominal income. In fact, the interestrateelasticity of the liquidity demand determines the effectiveness of monetary policy, which is useless under absolute liquidity preferen ..."
Abstract
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An important concern of macroeconomic analysis is how interest rates affect the cash balance demanded at a certain level of nominal income. In fact, the interestrateelasticity of the liquidity demand determines the effectiveness of monetary policy, which is useless under absolute liquidity preference, i.e. when the money demand is perfectly elastic. An actuarial approach is developed in this paper for dealing with random income. Assuming investors face liquidity constraints, a level of surplus exists which maximises expected value. Moreover, the optimal liquidity demand is expressed as a Value at Risk and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the interestrateelasticity depends on the kind of risks and expectations. The more unstable the economy, the greater the interestrateelasticity of the money demand. Moreover, part of the adjustment to reestablish the shortrun monetary equilibrium may be performed through volatility shocks.
Monetary Equilibrium §
, 2007
"... The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interestrateelasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors facing li ..."
Abstract
 Add to MetaCart
The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interestrateelasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors facing liquidity constraints and maintaining different expectations about risks. Under such circumstances, a level of surplus exists which maximises expected value. Moreover, when the distorted probability principle is introduced, the optimal liquidity demand is expressed as a Value at Risk and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the more unstable the economy, the greater the interestrateelasticity of the money demand. Moreover, for different parametric characterisation of risks, market parameters are expressed as the weighted average of sectorial or individual estimations, in such a way that multiple equilibria of the economy are possible.
Output and Limited Access to Debt
, 2007
"... The moneydemand of the economy is characterised, when national output is random and investors cannot attract any level of debt at any moment without incurring in additional costs. The optimal cash balance is then expressed as the probabilityquantile (or ValueatRisk) of the series of capital retu ..."
Abstract
 Add to MetaCart
The moneydemand of the economy is characterised, when national output is random and investors cannot attract any level of debt at any moment without incurring in additional costs. The optimal cash balance is then expressed as the probabilityquantile (or ValueatRisk) of the series of capital returns on income, and in this way, it is explicitly determined by risk. As a consequence, the interestrateelasticity depends on the kind of risks and expectations, in such a way that the more unstable the economy, the greater the interestrateelasticity of the moneydemand. Therefore, the effectiveness of monetary policy is increased by diminishing the variability of output. Moreover, since flows of capital can affect the riskiness of financial securities by modifying the amounts involved in transactions, part of the adjustment to reestablish the shortrun monetary equilibrium can be performed through volatility shocks. Finally, for different parametrisations of risks, aggregated parameters are expressed as the weighted average of sectorial estimations, so that multiple equilibria of the economy are allowed.