Munich Personal RePEc Archive

Risk adjustment of the credit-card augmented Divisia monetary aggregates

Barnett, William and Su, Liting (2016): Risk adjustment of the credit-card augmented Divisia monetary aggregates.

This is the latest version of this item.

[img]
Preview
PDF
MPRA_paper_73385.pdf

Download (405kB) | Preview

Abstract

While credit cards provide transactions services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. However, economic aggregation theory and index number theory measure service flows and are based on microeconomic theory, not accounting. Barnett, Chauvet, Leiva-Leon, and Su (2016) derived the aggregation and index number theory needed to measure the joint services of credit cards and money. They derived and applied the theory under the assumption of risk neutrality. But since credit card interest rates are high and volatile, risk aversion may not be negligible. We extend the theory by removing the assumption of risk neutrality to permit risk aversion in the decision of the representative consumer.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.