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Transactions Demand for Money with a Stochastic, Time-Varying Interest Rate

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Author Info
Smith, Gregor W

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Abstract

This paper considers a stochastic, time-varying interest rate in a continuous-time, inventory-theoretic model of the demand for money. The problem of minimizing expected, discounted cash-management costs is ascribed to an agent. An optimal cash-management policy exists and is of a familiar target-threshold form. Closed-form expressions for the forward-looking, time-varying targets and thresholds are derived in special cases and implications for the dynamics of the cash balance are described. Copyright 1989 by The Review of Economic Studies Limited.

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File URL: http://links.jstor.org/sici?sici=0034-6527%28198910%2956%3A4%3C623%3ATDFMWA%3E2.0.CO%3B2-X&origin=bc
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 4 (October)
Pages: 623-33
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Handle: RePEc:bla:restud:v:56:y:1989:i:4:p:623-33

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

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This page was last updated on 2009-12-19.

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