Financial Innovation and Regional Money

Nagayasu, Jun (2011): Financial Innovation and Regional Money.

Abstract

This paper studies the effect that financial innovation, which seems very prominent in recent years, has on money. Using Japanese regional data and the money demand specification, we first provide evidence of instability in the simple money-output relationship. However, when this relationship is extended to include a proxy for a comprehensive measure of financial innovation, the model is found to be stable. Furthermore, consistent with economic theory, evidence is obtained of financial innovation leading to decreased demand for liquid financial assets. In this respect, demand deposits seem to possess very similar characteristics to cash in Japan in recent years.

• Item Type: MPRA Paper
• Language: English
• Keywords: Regional money, panel cointegration
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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