MODELLING OF FINANCIAL ANXIETIES AS PRECAUTIONARY DEMAND FUNCTION

Abstract

Financial anxieties are modeled as psychological change of people due to financial shocks. Financial position (easy or tight) is regressed by interest rate of lending (rise.or fall) and the state of ‘’tight” position under the ‘’fall” interest rate is regarded as financial anxieties. Such anxiety is quantified by conditional variance of TARCH model. Precautionary demand is estimated as a function of financial anxieties in VEC model and the long-run equilibrium relationship of related monetary system of (money, real GDP, interest rate) is analyzed.