Document Type

Article

Publication Date

Summer 2000

Source Publication

Journal of Applied Business Research

Source ISSN

0892-7626

Abstract

A Keynesian money demand model is used to examine the interest elasticity of financial asset holdings by income level. In this model, once an individual receives income, they first make transactions, and any leftover income goes for speculative purposes. Since only speculative balances are assumed to change with interest rates, individuals with income used mainly for transactions purposes are theorized to have asset holdings that are unresponsive to interest rates, while higher income individuals with speculative balances are expected to be more responsive to interest rates. The results support the Keynesian model, as lower income households are found to have the smallest interest elasticity, and the estimated elasticity rises with income.

Comments

Published version. Journal of Applied Business Research, Vol. 16, No. 3 (Summer 2000): 39-50. Permalink. © The Clute Institute 2000. Used with permission. Published under Creative Commons License CC-BY 2.0.