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The money-age distribution: Empirical facts and economic modelling

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  • Burkhard Heer

    (Free University of Bolzano)

  • Alfred Maussner

    (University of Augsburg)

  • Paul McNelis

    (Fordham University)

Abstract

The money-age distribution is found to be hump-shaped for the US economy. The variation (inequality) of cash holdings within generations increases (declines) with age. Furthermore, cash holdings are found to be only weakly correlated ith both income and wealth. We analyze three motives for money demand in an overlapping generations model in order to explain this effect: 1) money in the utility, 2) an economy with costlyc credit service, and 3) limited participation. Both the simple money-in-the-utility model and the economy with the cash-credit goods are able to replicate the hump-shape profiles of cash holdings and its variation, but not the decreasing inequality within generations over age. In addition, we discuss the optimality of the Friedman rule in heterogeneous-agent economies. In the three models, zero inflation and zero nominal interest rates imply significant welfare losses

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 191.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:191

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Keywords: Money-age distribution; money demand;

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Cited by:
  1. Xavier Ragot, 2008. "The case for a financial approach to money demand," PSE Working Papers halshs-00586066, HAL.
  2. Yaz Terajima & Jose-Victor Rios-Rull & Césaire Meh & Shutao Cao, 2013. "Demand for Liquidity and Welfare Cost of Inflation by Cohort and Age of Households," 2013 Meeting Papers 569, Society for Economic Dynamics.
  3. repec:hal:wpaper:halshs-00586066 is not listed on IDEAS
  4. Carlo A. Favero & Arie E. Gozluklu & Haoxi Yang, 2011. "Demographics and The Behaviour of Interest Rates," Working Papers 388, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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