Corporate Liquidity Demand in the Us: Evidence from Panel Data
Ente Einaudi Working Paper No. 2003-T30
29 Pages Posted: 29 Apr 2004
Date Written: October 2003
In this paper we estimate the demand for liquidity by US business firms using 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 papers, suggesting that economies of scales in the demand for money are even bigger than formerly thought. In addition, it emerges that labor is not a substitute for money.
Keywords: Panel Data, Liquidity, Demand for Money, COMPUSTAT
JEL Classification: E41, L60, C23
Suggested Citation: Suggested Citation