Estimation of Moneyness Weights of Financial Assets in Simple Macroeconomic Model: The Case of Japan

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.