Empirical researchers in aggregate money demand have long been concerned with the degree of substitutability between money and other capital assets and the impact on money holdings of financial markets developments. Despite the potential importance of financial market linkages to money demand, empirical studies display substantial diversity in modeling these influences. Various econometric studies have found that money holdings may depend on short-term debt returns, bond yields, and even the term structure of interest rates. There is also evidence that stock market returns and measures of stock trading affect money holdings. Existing studies are limited in their evaluation of asset substitution patterns and other financial market effects because they look at a small subset of possible specifications.
