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Demand for cash with intra-period endogenous consumption

Avner Bar-ilan and Nancy Marion

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2668-2678

Abstract: We extend the literature on the demand for money by relaxing the assumption of a constant rate of consumption. Although total consumption is still fixed over the period, agents can choose more than one rate of consumption and cash depletion in the period to minimize the cost of money management. Consistent with empirical evidence, we find that agents do not smooth intra-period consumption. Instead, their rate of consumption will be positively related to their cash position. This positive correlation depends on the volatility of the consumption process.

Keywords: Money demand; Drift control; Consumption smoothing (search for similar items in EconPapers)
JEL-codes: E41 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2668-2678

DOI: 10.1016/j.jedc.2013.06.013

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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