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Technological change and the demand for currency: An analysis with household data

Francesco Lippi and Alessandro Secchi ()

No 697, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Advances in 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 withdrawal technology on the demand for currency. An empirical specification for households’ demand schedule is suggested, in which both the level of currency holdings and the interest rate elasticity of 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 period 1989-2004.

Keywords: money demand; inventory models; technological change (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2008-12
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Working Paper: Technological change and the demand for currency: An analysis with household data (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_697_08

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