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Developments in broad money since the start of the new millennium cannot be explained by the traditional determinants of money demand, namely, income, prices and portfolio effects. Households' direct and indirect participation in financial markets have led to the widespread democratization of these markets in the US since the 1970's. In the pre-democratized era, an increase in uncertainty would have resulted in a fall in the transactions demand for money due to pessimism regarding income and employment prospects. When markets become more democratized, the precautionary, or store-of-value function of money dominates the transactions demand in which case an increase in uncertainty results in a net increase in the demand for money.
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