Is Baumol's 'square root law' still relevant? evidence from micro-level data

David Bounie and Abel François

Applied Financial Economics, 2008, vol. 18, issue 13, 1091-1098

Abstract: The purpose of the article is to test, from micro-level data, the complete general framework of the transaction demand for money a la Baumol. Controlling for selection bias, we distinguish two populations who exclusively withdraw cash from either ATM or bank counter, from a sample of French representative individuals. The estimation results show the existence of large economies of scale as well as a positive effect of ATM surcharge and ATM and bank counter density on cash holding. Moreover, contrary to what might be expected, we do not find evidence of the impact of risk on cash holding.

Date: 2008
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DOI: 10.1080/09603100701367427

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