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

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Lippi, Francesco
Secchi, Alessandro

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Abstract

Advances in the 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 the withdrawal technology on the demand for currency. An empirical specification for the households demand schedule is suggested in which both the level of currency holdings and the interest rate elasticity of the 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 1989-2004 period.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6023.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:6023

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Related research
Keywords: inventory models; money demand; 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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  1. Allan H. Meltzer, 1963. "The Demand for Money: The Evidence from the Time Series," Journal of Political Economy, University of Chicago Press, vol. 71, pages 219. [Downloadable!] (restricted)
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  3. 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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  4. 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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  5. 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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  6. 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)
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  9. 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!]
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  12. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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  14. 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)
  15. 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!]
  16. 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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  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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