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Revisiting the empirical evidence on firms� money demand

  • Francesca Lotti

    ()

    (Banca d'Italia)

  • Juri Marcucci

    ()

    (Banca d'Italia)

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.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 595.

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Date of creation: May 2006
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Handle: RePEc:bdi:wptemi:td_595_06
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