Nonparametric and semi-nonparametric approaches to the demand for liquid assets

In this thesis we take a microeconomic- and aggregation-theoretic approach to the problem of the definition of money and to the demand for money in Canada. In particular we perform revealed preference tests to uncover the group of monetary assets appropriate for economic monetary aggregation. We also test some of the official monetary aggregates produced by the Bank of Canada. We conclude that broad aggregates will perform better than narrow monetary aggregates in macroeconomic models. We proceed our study in a parametric setting by estimating a demand system derived from a global flexible functional form the Fourier. This model produces arbitrary estimates of elasticities of substitution. The elasticities of substitution between personal deposits, non-personal deposits and foreign currency deposits are found to be low and variable over the period of study. This is evidence against putting these types of assets together and against methods of aggregation that do not account for variable elasticities of substitution.