Abstract: The extent to which the money supply affects the aggregate cash balance demanded at a certain level of nominal income and interest rates is determined by the interest-rate-elasticity and stability of the money demand. An actuarial approach is adopted in this paper for dealing with investors facing liquidity constraints and maintaining different expectations about risks. Under such circumstances, a level of surplus exists which maximises expected value. Moreover, when the distorted probability principle is introduced, the optimal liquidity demand is expressed as a Value-at-Risk and the comonotonic dependence structure determines the amount of money demanded by the economy. As a consequence, the more unstable the economy, the greater the interestrate-elasticity of the money demand. Moreover, for different parametric characterisation of risks, market parameters are expressed as the weighted average of sectorial or individual estimations, in such a way that multiple equilibria of the economy are possible.

Abstract: Since the capital structure affects the performance of financial institutions confronted to liquidity constraints, the Economic Capital is determined by the maximisation of value. Allowing economic decisions to be characterised by a distorted probability distribution (so assessing the attitude towards risk as well as information and knowledge) the optimal surplus is expressed as a Value-at-Risk, as recommended by the Basel Committee. Thus, demanding more capital than regulatory requirements accounts for different expectations about risks. The optimal surplus is allocated to the lines of business of a conglomerate according to the borne risk and the type of divisional managers. Full allocation is assured and no covariances are required. Further, a mechanism is provided, which allows for the distribution of equity in a decentralised organisation.