The demand for assets through a low-interest rate environment

Asset demand is important in many areas of economics. To investigate this, we estimate a globally flexible dynamic Fourier asset demand specification and calculate Morishima elasticities of substitution for six asset categories for the U.S. This specification produces negative own price (user cost) elasticities. The Morishima elasticities show that each of the six asset groups is substitutes. These results suggest that monetary policy efficacy increases in recessions and support the Barnett Critique that central banks should not ignore substitution effects and portfolio adjustments among financial assets and Friedman and Schwartz's view that saving deposit assets should be included in money.