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Is Baumol's 'square root law' still relevant? evidence from micro-level data

Author

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  • David Bounie
  • Abel Francois

Abstract

The purpose of the article is to test, from micro-level data, the complete general framework of the transaction demand for money a la Baumol. Controlling for selection bias, we distinguish two populations who exclusively withdraw cash from either ATM or bank counter, from a sample of French representative individuals. The estimation results show the existence of large economies of scale as well as a positive effect of ATM surcharge and ATM and bank counter density on cash holding. Moreover, contrary to what might be expected, we do not find evidence of the impact of risk on cash holding.

Suggested Citation

  • David Bounie & Abel Francois, 2008. "Is Baumol's 'square root law' still relevant? evidence from micro-level data," Applied Financial Economics, Taylor & Francis Journals, vol. 18(13), pages 1091-1098.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:13:p:1091-1098
    DOI: 10.1080/09603100701367427
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    References listed on IDEAS

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    1. Paunonen, Heli & Jyrkönen, Hanna, 2002. "Cash usage in Finland : How much can be explained?," Research Discussion Papers 10/2002, Bank of Finland.
    2. Elizabeth C. Klee, 2006. "Paper or plastic? the effect of time on the use of check and debit cards at grocery stores," Finance and Economics Discussion Series 2006-02, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    2. Ulf Von Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Using Cash to Monitor Liquidity: Implications for Payments, Currency Demand, and Withdrawal Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1753-1786, December.
    3. Tamas Briglevics & Scott Schuh, 2013. "U.S. consumer demand for cash in the era of low interest rates and electronic payments," Working Papers 13-23, Federal Reserve Bank of Boston.

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