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The demand for money by firms: some additional empirical results

  • Casey B. Mulligan

COMPUSTAT data on 12,000 firms for the years 1956-1992 indicate that large firms hold less cash as a percentage of sales than do small ones. Whether comparisons are made within or across industries, the elasticity of cash balances with respect to sales is about 0.75. Firms headquartered in counties with high wages hold more money for a given level of sales, a finding consistent with the idea that time can substitute for money in the provision of transactions services. The estimates are consistent with both scale economies in the holding of money and secular declines in velocity.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 125.

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Date of creation: 1997
Date of revision:
Handle: RePEc:fip:fedmem:125
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  1. Fischer, Stanley, 1974. "Money and the Production Function," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 517-33, December.
  2. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  3. Sala-i-Martin, X. & Mulligan, C.B., 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Papers 671, Yale - Economic Growth Center.
  4. 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.
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  8. 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.
  9. Karni, Edi, 1973. "The Transactions Demand for Cash: Incorporation of the Value of Time into the Inventory Approach," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1216-25, Sept.-Oct.
  10. 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.
  11. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, July.
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  13. anonymous, 1971. "Survey of demand deposit ownership," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 456-467.
  14. 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.
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  17. Bomberger, William A, 1993. "Income, Wealth, and Household Demand for Deposits," American Economic Review, American Economic Association, vol. 83(4), pages 1034-44, September.
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  19. Edgar L. Feige, 1964. "The Demand For Liquid Assets: A Temporal Cross‐Section Analysis," Journal of Finance, American Finance Association, vol. 19(1), pages 116-117, 03.
  20. 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.
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