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Technological change and the demand for currency: An analysis with household data

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Author Info
Francesco Lippi () (University of Sassari, EIEF and CEPR)
Alessandro Secchi () (Bank of Italy, Economics and International Relations)

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Abstract

Advances in transaction technology allow agents to economize on the cost of cash management. We argue that accounting for the impact of new transaction technologies on currency holding behaviour is important to obtain theoretically consistent estimates of the demand for money. We modify a standard inventory model to study the effect of withdrawal technology on the demand for currency. An empirical specification for households’ demand schedule is suggested, in which both the level of currency holdings and the interest rate elasticity of demand depend on the withdrawal technology available to agents (e.g. ATM card ownership or a high/low density of bank branches, ATMs). The theoretical implications are tested using a unique panel of Italian household data (on currency holdings, deposit interest rates, consumption, development of banking services, etc.) for the period 1989-2004.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 697.

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Date of creation: Dec 2008
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Handle: RePEc:bdi:wptemi:td_697_08

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Related research
Keywords: money demand; inventory models; technological change;

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E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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References listed on IDEAS
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  1. Luca Casolaro & Leonardo Gambacorta & Luigi Guiso, 2005. "Regulation, formal and informal enforcement and the development of the household loan market. Lessons from Italy," Temi di discussione (Economic working papers) 560, Bank of Italy, Economic Research Department. [Downloadable!]
  2. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January. [Downloadable!] (restricted)
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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  6. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Economic Change and Restructuring, Springer, vol. 31(2), pages 93-115, June. [Downloadable!] (restricted)
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  7. Fabio Busetti, 2003. "Tests of seasonal integration and cointegration in multivariate unobserved component models," Temi di discussione (Economic working papers) 476, Bank of Italy, Economic Research Department. [Downloadable!]
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  8. Pedro Teles & Ruilin Zhou, 2005. "A stable money demand: Looking for the right monetary aggregate," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 50-63. [Downloadable!]
  9. Casey B. Mulligan & Xavier Sala-i-Martin, 2000. "Extensive Margins and the Demand for Money at Low Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 961-991, October. [Downloadable!] (restricted)
  10. Juri Marcucci & Mario Quagliariello, 2008. "Credit risk and business cycle over different regimes," Temi di discussione (Economic working papers) 670, Bank of Italy, Economic Research Department. [Downloadable!]
  11. Fernando E. Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," NBER Working Papers 13416, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April. [Downloadable!] (restricted)
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  13. De Fiore, Fiorella & Teles, Pedro, 2003. "The optimal mix of taxes on money, consumption and income," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 871-887, May. [Downloadable!] (restricted)
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  14. King, Robert G., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 169-172, January. [Downloadable!] (restricted)
  15. Puhani, Patrick A, 2000. " The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Blackwell Publishing, vol. 14(1), pages 53-68, February. [Downloadable!] (restricted)
  16. Duca, John V & Whitesell, William C, 1995. "Credit Cards and Money Demand: A Cross-sectional Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 604-23, May. [Downloadable!] (restricted)
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  1. Alvarez, Fernando E & Lippi, Francesco, 2007. "Financial Innovation and the Transactions Demand for Cash," CEPR Discussion Papers 6472, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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