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This Is What's in Your Wallet...and Here's How You Use It

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  • Tamás Briglevics

    (Magyar Nemzeti Bank)

  • Scott Schuh

    (West Virginia University)

Abstract

Consumer wallets have more means of payment yet cash still is used most. We develop a dynamic structural model blending cash inventory management and payment instrument choice. For each expenditure, consumers endogenously pay with cash, debit card, or credit card with an option to withdraw cash beforehand. The model is estimated with transaction-level data from a daily consumer payment diary and reveals that utility from payment services exceed cash management costs. For payment card owners, optimal cash holdings are about $50 and jointly determined with the share of cash payments. Eliminating either cash or payment cards reduces consumer welfare significantly.

Suggested Citation

  • Tamás Briglevics & Scott Schuh, 2020. "This Is What's in Your Wallet...and Here's How You Use It," Working Papers 20-04, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:20-04
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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1042&context=econ_working-papers
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    1. Brown, Martin & Hentschel, Nicole & Mettler, Hannes & Stix, Helmut, 2022. "The convenience of electronic payments and consumer cash demand," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 86-102.

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    More about this item

    Keywords

    Money demand; cash inventory management; payment demand; debit cards; credit cards; structural estimation; discrete-continuous choice; Diary of Consumer; Payment Choice;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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