Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/30250

TitleOn inflation and money demand in a portfolio model with shopping costs
Author(s)Freitas, Miguel Lebre de
KeywordsMoney demand
Currency substitution
Portfolio Theory
Issue date2014
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Abstract(s)In this paper, we investigate the conditions under which expected inflation might influence the money demand, using a microeconomic model where the transactions of the representative agent are facilitated by its holdings of money. We assume that the agent holds a real asset, along with a range of nominal assets, that may include domestic money, foreign money, domestic bonds and foreign bonds. In this model, the optimal choice between money and bonds is embedded in a portfolio choice between the real asset and risky assets (the Merton problem). We show that, as long as the agent is not constrained in her holdings of bonds, the demand for domestic money will not, in general, depend on expected inflation. The demand for money may however become a positive function of the inflation rate in case the agent is constrained in her holdings of foreign bonds. The only case in which the demand for domestic money may depend negatively on the inflation rate is when the agent faces a binding constraint in her holdings of domestic bonds.
TypeWorking paper
URIhttp://hdl.handle.net/1822/30250
Publisher versionhttp://www.nipe.eeg.uminho.pt/Uploads/WP_2014/NIPE_WP_13_2014.pdf
Peer-Reviewedno
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

Files in This Item:
File Description SizeFormat 
NIPE_WP_13_2014.pdfNIPE WP 13/20142,1 MBAdobe PDFView/Open

Partilhe no FacebookPartilhe no TwitterPartilhe no DeliciousPartilhe no LinkedInPartilhe no DiggAdicionar ao Google BookmarksPartilhe no MySpacePartilhe no Orkut
Exporte no formato BibTex mendeley Exporte no formato Endnote Adicione ao seu ORCID