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Are there Economies of Scale in the Demand for Money by Firms? some Panel Data Estimates

Author

Listed:
  • Olympia Bover

    (Banco de España)

  • Nadine Watson

    (NERA)

Abstract

The purpose of this paper is to estimate elasticities of scale in the demand for money by firms using firm level panel data. In common with the recent literature, we use disaggregate data to overcome the identification problems in aggregate time series approaches. Our main dataset is a sample of Spanish companies that are observed for the period 1983-1996, although we also analyse comparable datasets for the UK and the US. As measures of scale we consider both firm sales and firm output.

Suggested Citation

  • Olympia Bover & Nadine Watson, 2000. "Are there Economies of Scale in the Demand for Money by Firms? some Panel Data Estimates," Working Papers 0008, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0008
    as

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    References listed on IDEAS

    as
    1. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Chapters,in: The Demand for Money: Some Theoretical and Empirical Results, pages 1-29 National Bureau of Economic Research, Inc.
    2. Bover, Olympia & Watson, Nadine, 2005. "Are there economies of scale in the demand for money by firms? Some panel data estimates," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1569-1589, November.
    3. Faig, Miquel, 1988. "Characterization of the optimal tax on money when it functions as a medium of exchange," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 137-148, July.
    4. 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 219-219.
    5. Hiroshi Fujiki & Casey B. Mulligan, 1996. "Production, Financial Sophistication, and the Demand for Money by Households and Firms," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 65-103, July.
    6. Casey B. Mulligan & Xavier Sala-I-Martin, 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 285-343.
    7. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    8. 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.
    9. Casey B. Mulligan & Xavier Sala-i-Martin, 1995. "Adoption of financial technologies: Implications for money demand and monetary policy," Economics Working Papers 134, Department of Economics and Business, Universitat Pompeu Fabra.
    10. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    11. 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.
    12. Casey B. Mulligan, "undated". "The Demand for Money by Firms: Some Additional Empirical Results," University of Chicago - Population Research Center 97-1, Chicago - Population Research Center.
    13. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
    14. Mulligan, Casey B, 1997. "Scale Economies, the Value of Time, and the Demand for Money: Longitudinal Evidence from Firms," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1061-1079, October.
    15. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    16. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. André C. Silva & Bernardino Adão, 2015. "Increased strength of monetary policy," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    2. André C. Silva, 2012. "Rebalancing Frequency and the Welfare Cost of Inflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 153-183, April.
    3. Sarafidis, Vasilis, 2009. "GMM Estimation of Short Dynamic Panel Data Models With Error Cross-Sectional Dependence," MPRA Paper 25176, University Library of Munich, Germany.
    4. Andrew Benito & John Whitley, 2003. "Implicit interest rates and corporate balance sheets: an analysis using aggregate and disaggregated UK data," Bank of England working papers 193, Bank of England.
    5. Liu, Jin-Tan & Tsou, Meng-Wen & Wang, Ping, 2008. "Differential cash constraints, financial leverage and the demand for money: Evidence from a complete panel of Taiwanese firms," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 523-542, March.
    6. Robertson, Donald & Sarafidis, Vasilis, 2015. "IV estimation of panels with factor residuals," Journal of Econometrics, Elsevier, vol. 185(2), pages 526-541.
    7. Fischer, Andreas M., 2014. "Immigration And Large Banknotes," Macroeconomic Dynamics, Cambridge University Press, vol. 18(04), pages 899-919, June.
    8. Andre Silva & Bernardino Adao, 2017. "The Effect of Firm Cash Holdings on Monetary Policy," 2017 Meeting Papers 528, Society for Economic Dynamics.
    9. Bover, Olympia & Watson, Nadine, 2005. "Are there economies of scale in the demand for money by firms? Some panel data estimates," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1569-1589, November.
    10. André C. Silva & Bernardino Adão, 2018. "The Effect of Firm Cash Holdings on Monetary Policy," Working Papers w201804, Banco de Portugal, Economics and Research Department.
    11. Fischer, Andreas M., 2007. "Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation?," European Economic Review, Elsevier, vol. 51(7), pages 1641-1660, October.
    12. Romina Bafile & Alessandro Piergallini, 2017. "Firms’ money demand and monetary policy," Pacific Economic Review, Wiley Blackwell, vol. 22(3), pages 350-382, August.
    13. repec:pdc:jrnbeh:v:14:y:2018:i:3:p:561-569 is not listed on IDEAS
    14. Hermilson Velásquez & Francisco Zuluaga Díaz, 2005. "Demanda de dinero al nivel de la firma: el caso colombiano," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT, October.
    15. Piero Ganugi & Luigi Grossi & Giancarlo Ianulardo, 2015. "Scale Economies And Heterogeneity In Business Money Demand: The Italian Experience," Bulletin of Economic Research, Wiley Blackwell, vol. 67(2), pages 146-165, April.

    More about this item

    Keywords

    demand; money; wages; elasticity; interest rate;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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