Revisiting the Empirical Evidence on Firms' Money Demand

37 Pages Posted: 14 Jul 2006

Date Written: May 2006

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.

Keywords: Panel Data, Liquidity, Demand for Money, COMPUSTAT

JEL Classification: E41, L60, C23

Suggested Citation

Lotti, Francesca and Marcucci, Juri, Revisiting the Empirical Evidence on Firms' Money Demand (May 2006). Bank of Italy Economic Research Paper No. 595, Available at SSRN: https://ssrn.com/abstract=915364 or http://dx.doi.org/10.2139/ssrn.915364

Francesca Lotti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Juri Marcucci

Bank of Italy ( email )

Via Nazionale , 91
Rome, 00184
Italy
+39-06-4792-4069 (Phone)

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