This paper extends a New Keynesian model to include roles for currency and deposits as competing sources of liquidity services demanded by households. It shows that, both qualitatively and quantitatively, the Barnett critique applies: While a Divisia aggregate of monetary services tracks the...

"This paper finds strong evidence of time-variations in the joint distribution of returns on a stock market portfolio and portfolios tracking size--and value effects. Mean returns, volatilities and correlations between these equity portfolios are found to be driven by underlying regimes that...