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Revisiting the empirical evidence on firms� money demand

Author

Listed:
  • Francesca Lotti

    (Banca d'Italia)

  • Juri Marcucci

    (Banca d'Italia)

Abstract

In this paper we estimate the demand for liquidity by US non financial firms using data from COMPUSTAT database. In contrast to the previous literature, we consider firm-specific effects, such as cost-of-capital and wages. From the balanced and unbalanced panel estimations we infer that there are economies of scale in money demand by US business firms, because estimated sales elasticities are smaller than unity. In particular, they are lower than in previous empirical studies, suggesting that economies of scale in the demand for money are even bigger than formerly thought. In addition, it emerges that labor is not a substitute for money.

Suggested Citation

  • Francesca Lotti & Juri Marcucci, 2006. "Revisiting the empirical evidence on firms� money demand," Temi di discussione (Economic working papers) 595, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_595_06
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2006/2006-0595/tema_595.pdf
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    Cited by:

    1. Sauro Mocetti, 2012. "Educational choices and the selection process: before and after compulsory schooling," Education Economics, Taylor & Francis Journals, vol. 20(2), pages 189-209, February.
    2. 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

    Panel Data; Liquidity; Demand for Money; COMPUSTAT;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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