Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2002:9: The UK Personal Sector Demand for Risky Money

Jane Binner () and Thomas Elger
Additional contact information
Jane Binner: University of Sheffield
Thomas Elger: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This study compares the empirical performance of a capital certain Divisia 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. Financial 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. The coefficient estimates for both the capital certain and risky systems are consistent with theory and remarkably stable.

Keywords: Divisia; Risk; Money Demand

JEL-codes: C43; C52; E41

36 pages, March 11, 2002

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