Technological Change and the Demand for Currency: An Analysis With Household Data

36 Pages Posted: 26 Jun 2007

See all articles by Francesco Lippi

Francesco Lippi

University of Sassari

Alessandro Secchi

affiliation not provided to SSRN

Date Written: December 2006

Abstract

Advances in the transaction technology allow agents to economize on the cost of cash management. We argue that accounting for the impact of new transaction technologies on currency holding behaviour is important to obtain theoretically consistent estimates of the demand for money. We modify a standard inventory model to study the effect of the withdrawal technology on the demand for currency. An empirical specification for the households demand schedule is suggested in which both the level of currency holdings and the interest rate elasticity of the demand depend on the withdrawal technology available to agents (e.g. ATM card ownership or a high/low density of bank branches, ATMs). The theoretical implications are tested using a unique panel of Italian household data (on currency holdings, deposit interest rates, consumption, development of banking services, etc.) for the 1989-2004 period.

Keywords: Inventory models, money demand, technological change

JEL Classification: E5

Suggested Citation

Lippi, Francesco and Secchi, Alessandro, Technological Change and the Demand for Currency: An Analysis With Household Data (December 2006). CEPR Discussion Paper No. 6023. Available at SSRN: https://ssrn.com/abstract=996688

Francesco Lippi (Contact Author)

University of Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

Alessandro Secchi

affiliation not provided to SSRN

No Address Available

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