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Demand for cash with intra-period endogenous consumption

  • Bar-Ilan, Avner
  • Marion, Nancy

We extend the literature on the demand for money by relaxing the assumption of a constant rate of consumption. Although total consumption is still fixed over the period, agents can choose more than one rate of consumption and cash depletion in the period to minimize the cost of money management. Consistent with empirical evidence, we find that agents do not smooth intra-period consumption. Instead, their rate of consumption will be positively related to their cash position. This positive correlation depends on the volatility of the consumption process.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 12 ()
Pages: 2668-2678

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:2668-2678
DOI: 10.1016/j.jedc.2013.06.013
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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