The Life-Cycle Motive and Money Demand: Further Evidence

This study takes a closer look at the relationship between money demand and the life-cycle motive using panel data from the Survey of Income and Program Participation. Findings indicate that the life-cycle motive exerts a direct impact on household demand for interest-earning monetary assets, but not on non-interest-earning checking deposits. The strength of the relationship, however, varies among households with divergent characteristics. There is no evidence of a unitary income elasticity for both interestand non-interest-yielding monetary assets. The demand for interest-earning monetary assets is very sensitive to changes in the own rate of interest, but the interest rate elasticity for non-interest-earning checking accounts is quite small. I would like to thank the referee for many valuable comments. The views expressed in this study are solely those of the author and do not necessarily reflect those of the Commerce Department or the Census Bureau. Citation: Tin, Jan, (2008) "The Life-Cycle Motive and Money Demand: Further Evidence." Economics Bulletin, Vol. 5, No. 18 pp. 1-12 Submitted: August 29, 2007. Accepted: May 30, 2008. URL: http://economicsbulletin.vanderbilt.edu/2008/volume5/EB-07E40002A.pdf 1 (1)