Investigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran

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ROSHAN REZA

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Journal: JOURNAL OF ECONOMIC MODELING RESEARCH Year:2019 | Volume:9 | Issue:36 Page(s): 163-194

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Title

Investigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran

Author(s)

ROSHAN REZA | Issue Writer Certificate

Keywords

Consumption-Based Capital Asset Pricing ModelsQ1

Real Money BalanceQ1

LiquidityQ1

Euler EquationsQ1

GMMQ1

Abstract

In this paper, we try to develop and modify the basic model of the consumption-based capital asset pricing model by adding the growth in Real Money Balances rate as a risk factor in the household's utility function as (M-CCAPM). For this purpose, two forms of utility function with constant relative risk aversion (CRRA) preferences and recursive preferences have been used such that M1 and M2 are considered as inputs in the utility function. After estimating the systems of Euler Equations using generalized moments method, MSE, MAE, and HJ criteria were used to select the most suitable model for estimating the share of variable of Real Money Balance. The above criteria show that the model with the input of Liquidity (M2) and preferences with constant relative risk aversion is the most appropriate model. The results indicate that the share of Real Money Balance in the utility function of Iranian households is statistically significant and is about 34%. Therefore, considering the contribution of the monetary variable to the utility function which is relatively significant, it is emphasized on its entry into the utility functions used in asset pricing models.

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APA: Copy

ROSHAN, REZA. (2019). Investigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran. JOURNAL OF ECONOMIC MODELING RESEARCH, 9(36 ), 163-194. SID. https://sid.ir/paper/378400/en

Vancouver: Copy

ROSHAN REZA. Investigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran. JOURNAL OF ECONOMIC MODELING RESEARCH[Internet]. 2019;9(36 ):163-194. Available from: https://sid.ir/paper/378400/en

IEEE: Copy

REZA ROSHAN, “Investigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran,” JOURNAL OF ECONOMIC MODELING RESEARCH, vol. 9, no. 36 , pp. 163–194, 2019, [Online]. Available: https://sid.ir/paper/378400/en

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