| The basic idea motivating this study is to consider the monetary problem in an approach that takes account of the different degrees of "moneyness" possessed by the various monetary assets. Monetary assets, other than real cash balances, possess some degree of "moneyness" and are not demanded entirely for transactions. The behavior of monetary aggregates and, in particular, the choice of the proper aggregate for use as an indicator and/or instrument in the design of monetary policy require precise measurement of the elasticities of substitution between the various monetary assets (which are the proposed components of any monetary aggregate).; Estimates of a quantitative measure of the degree of substitutability of other monetary assets to money in the context of a flexible functional form (with no undesirable restrictions) form the central part of this study. This has been done within a model that takes advantage of the existing micro-economics foundations and of the concepts and techniques of modern demand system analysis. The model used is derived from a micro-theoretical framework where an individual is considered to be the decision unit. In this model, instead of making assumptions (e.g. symmetry, linear homogeneity) to justify the aggregation over individuals, we test for the existence of the representative utility function by testing for regularity and integrability conditions. The explicit derivation and treatment of technological change in the money market and the extension of the model to include foreign monetary assets, in addition to the stochastic specification within nonlinear estimation techniques, make the present study distinct from the previous studies that are most similar in approach. |
