MONEY DEMAND AND THE PROLIFERATION OF ALTERNATIVE FINANCIAL ASSETS

Abstract

We examine the relationship between households’ demand for traditional money and the proliferation of alternative financial assets using a cross-section of countries. We have found that the inclusion of the disaggregated indicators of financial assets improves the money demand models. Notably, this relationship appears to be non-linear. At higher stages of financial development, an increase in alternative assets is associated with a larger decrease in money demand.