Household Money Holdings and The Demand Deposit Rate

A MAJOR CONCLUSION FROM RECENT empirical studiesl is that demand for money is inversely related to tlle interest rate. Interest rate variables contained in previous studies range over a variety of financial assets and include both shortand long-term rates. In general however, the opportunity cost of holding money is measured by the absolute rate of return on some alternative asset-tllat is, the (marginal) rate of return on money is implicitly taken to be zero*2