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Technological change and the households' demand for currency


  • Francesco Lippi

    (University of Sassari, EIEF and CEPR)

  • Alessandro Secchi

    (Bank of Italy)


It is shown that accounting for technology variations, across households and periods, is important to obtain theoretically consistent estimates of the demand for currency. An inventory model is presented where the withdrawal technology is explicitly modeled. Both the level and the interest rate elasticity of cash holdings depend on the withdrawal technology available to households. Empirical proxies for the household withdrawal technology, based on the diffusion of cash withdrawal points measured at city level, are used to test the model predictions on a panel of Italian household data over the 1993-2004 period.

Suggested Citation

  • Francesco Lippi & Alessandro Secchi, 2008. "Technological change and the households' demand for currency," EIEF Working Papers Series 0801, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
  • Handle: RePEc:eie:wpaper:0801

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    References listed on IDEAS

    1. Mathias Drehmann & Charles Goodhart & Malte Krueger, 2002. "The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies?," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 193-228, April.
    2. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 93-115, June.
    3. 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.
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    5. Daniels, Kenneth N & Murphy, Neil B, 1994. "The Impact of Technological Change on the Currency Behavior of Households: An Empirical Cross-Section Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 867-874, November.
    6. 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.
    7. De Fiore, Fiorella & Teles, Pedro, 2003. "The optimal mix of taxes on money, consumption and income," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 871-887, May.
    8. Fernando Alvarez & Francesco Lippi, 2009. "Financial Innovation and the Transactions Demand for Cash," Econometrica, Econometric Society, vol. 77(2), pages 363-402, March.
    9. E.S. Andersen, 2007. "Innovation and Demand," Chapters,in: Elgar Companion to Neo-Schumpeterian Economics, chapter 47 Edward Elgar Publishing.
    10. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
    11. Duca, John V & Whitesell, William C, 1995. "Credit Cards and Money Demand: A Cross-sectional Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 604-623, May.
    12. Puhani, Patrick A, 2000. " The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 53-68, February.
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