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Revisiting the empirical evidence on firms' money demand

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  • Lotti, Francesca
  • Marcucci, Juri

Abstract

In this paper we estimate the demand for liquidity by US non financial firms using data from COMPUSTAT database. In contrast to the previous literature, we consider firm-specific effects, such as cost-of-capital and wages. From the balanced and unbalanced panel estimations we infer that there are economies of scale in money demand by US business firms, because estimated sales elasticities are smaller than unity. In particular, they are lower than in previous empirical studies, suggesting that economies of scale in the demand for money are even bigger than formerly thought. In addition, it emerges that labor is not a substitute for money.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 59 (2007)
Issue (Month): 1 ()
Pages: 51-73

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Handle: RePEc:eee:jebusi:v:59:y:2007:i:1:p:51-73

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Web page: http://www.elsevier.com/locate/jeconbus

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  1. William J. Frazer & Jr., 1964. "The Financial Structure of Manufacturing Corporations and the Demand for Money: Some Empirical Findings," Journal of Political Economy, University of Chicago Press, vol. 72, pages 176.
  2. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Books, National Bureau of Economic Research, Inc, number frie59-1.
  3. Richard T. Selden, 1961. "The Postwar Rise In The Velocity Of Money A Sectoral Analysis," Journal of Finance, American Finance Association, vol. 16(4), pages 483-545, December.
  4. Casey B. Mulligan, 1997. "The demand for money by firms: some additional empirical results," Discussion Paper / Institute for Empirical Macroeconomics 125, Federal Reserve Bank of Minneapolis.
  5. Richard G. Anderson, 2002. "Retail sweep programs and money demand," Monetary Trends, Federal Reserve Bank of St. Louis, issue Nov.
  6. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
  7. Richard G. Anderson, 2003. "Retail deposit sweep programs: issues for measurement, modeling and analysis," Working Papers 2003-026, Federal Reserve Bank of St. Louis.
  8. Mulligan, Casey B, 1997. "Scale Economies, the Value of Time, and the Demand for Money: Longitudinal Evidence from Firms," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1061-79, October.
  9. Ben-Zion, Uri, 1974. "The Cost of Capital and the Demand for Money by Firms: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 263-69, May.
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Cited by:
  1. Luca Sessa, 2012. "Economic (in)stability under monetary targeting," Temi di discussione (Economic working papers) 858, Bank of Italy, Economic Research and International Relations Area.
  2. Bafile, Romina & Piergallini, Alessandro, 2011. "Firms’ Money Demand and Monetary Policy," MPRA Paper 29028, University Library of Munich, Germany.
  3. Ganugi, Piero & Grossi, Luigi & Ianulardo, Giancarlo, 2009. "Scale Economies and Heterogeneity in Business Money Demand : The Italian Experience," Department of Economics Working Papers 15962, University of Bath, Department of Economics.

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