Aggregate and Household Demand for Money :

We use data from Public Opinion Surveys on Household Financial Assets and Li-abilities from 1991 to 2002 to investigate the issues of unobserved heterogeneity amongcross-sectional units and stability of Japanese aggregate money demand function. Condi-tions that permit individual data and aggregate data to be modeled under one consistentformat are given. Alternative definitions of money are explored through year-by-year cross-sectional estimates of Fujiki-Mulligan (1996) household money demand model. We findthat using M3 appears to be broadly consistent with time series estimates using the aggre-gates constructed from the micro data. The results appear to support the existence of a∗This paper was prepared while Cheng Hsiao was a visiting scholar at the institute forMonetary and Economic Studies of the Bank of Japan (BOJ). During the preparation ofthis paper, the authors participated in the Research Group on the Public Opinion Surveyon Household Financial Assets and Liabilities, and received permission from the CentralCouncil for Financial Services Information (CCFSI) to utilize the Public Opinion Surveyon Household Financial Assets and Liabilities data. The authors would like to thank theCCFSI for providing the data. The authors would also like to thank Hiroyuki Ooi forhis excellent research assistance, Mr. Toshinao Yoshiba for pointing out an error in anearly version, and a referee for helpful comments. Regardless, any remaining errors are theauthors’. Views expressed in this paper are those of the authors and do not necessarilyreflect the official views of the BOJ. stable money demand function for Japan. The estimated income elasticity for M3 is about0.68 and five year bond interest rate elasticity is about -0.124. “The chief goal in empirical work is to find a way of organizing experience so that it yields “simple” yet highly dependable relationships. And one of the major devices that has proved successful in achieving this goal has been the use of carefully chosen, “right” levels of aggregation of different items”. (Friedam and Schwartz (1970)).