The Parametric Approach to the Demand for Monetary Assets
The parametric approach to applied demand analysis involves postulating parametric forms for the utility function and then fitting the resulting demand functions to a finite number of observations on consumer behavior. As we argued earlier, this approach will be satisfactory only when the postulated parametric forms are good approximations to the generating demand functions. Our approach in this chapter addresses the question of how to derive a set of demand functions for monetary assets from a framework in which the representative asset holder maximizes the monetary services utility function f(x), subj ect to the budget constraint. We will state the problem first and then show why and how duality theory might be employed explicitly in the rationalization of estimable demand functions.
KeywordsUtility Function Demand System Monetary Aggregate Liquid Asset Indirect Utility Function
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