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The demand of liquid assets with uncertain lumpy expenditures

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  • Alvarez, Fernando
  • Lippi, Francesco

Abstract

We consider an inventory model for a liquid asset where the per-period net expenditures have two components: one that is frequent and small and another that is infrequent and large. We give a theoretical characterization of the optimal management of liquid asset as well as of the implied observable statistics. We use our characterization to interpret some aspects of households' currency management in Austria, as well as the management of demand deposits by a large sample of Italian investors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 7 ()
Pages: 753-770

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Handle: RePEc:eee:moneco:v:60:y:2013:i:7:p:753-770

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Money demand; Liquid assets; Lumpy purchases; Inventory theory;

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  10. Fernando Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," EIEF Working Papers Series 0807, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2007.
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  16. Edwin H. Neave, 1970. "The Stochastic Cash Balance Problem with Fixed Costs for Increases and Decreases," Management Science, INFORMS, vol. 16(7), pages 472-490, March.
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Cited by:
  1. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2014. "Small and Large Price Changes and the Propagation of Monetary Shocks," NBER Working Papers 20155, National Bureau of Economic Research, Inc.

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