Inflation , Money Demand and Portfolio Choice ∗
نویسندگان
چکیده
We introduce a money demand motive in a life-cycle portfolio choice model and estimate the structural parameters that can generate limited stock market participation and plausible holdings of money, bonds and stocks. The model predicts an increase in bond holdings over the life cycle, and a declining share of money in portfolios as wealth increases. Both predictions are consistent with the data, even though the model overpredicts stock holdings in early life. When mean inflation approaches the Friedman rule, money demand crowds out completely bond demand and the share of financial wealth in stocks decreases. JEL Classification: E41, G11.
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