Estimation of Moneyness Weights of Financial Assets in Simple Macroeconomic Model

Abstract

The basic idea is that various financial assets have different

moneyness characteristics and that money can be empirically

defined as weighted sum of these financial assets. A simple

macroeconomic model is constructed for the purpose of estimating

the moneyness weights of financial assets. We built two

basic propositions of the modern quantity theory of money into

the structure of the model. The model is nonlinear and contains

cross-equation constraints. Nonlinear minimum distance estimator

is applied to the system as a whole, for the case of Japan.

The estimated results agree with the main assertions of the

quantity theory and seem to indicate that we have to pay more

attention to the broader definitions of money.