Individual and aggregate money demands

Andre Silva ()

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: I construct a model in which money and bond holdings are consistent with individual decisions and aggregate variables such as production and interest rates. The agents are infinitely-lived, have constant-elasticity preferences, and receive a fraction of their income in money. Each agent solves a Baumol-Tobin money management problem. Markets are segmented because financial frictions make agents trade bonds for money at different times. Trading frequency, consumption, government decisions and prices are mutually consistent. An increase in inflation, for example, implies higher trading frequency, more bonds sold to account for seigniorage, and lower real balances.

Keywords: money demand; cash management; inventory problem; market segmentation (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp557

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