IDEAS home Printed from https://ideas.repec.org/a/bla/ijethy/v5y2009i3p301-313.html
   My bibliography  Save this article

Demand for cash balances in a cashless economy

Author

Listed:
  • Richard Dusansky
  • Çağatay Koç

Abstract

We study the demand for cash balances in the year 2050, when people exclusively use debit cards for all transactions. Money no longer serves as a medium of exchange. However, money still retains its roles as unit of account, numeraire and store of value. We capture these roles in a multi‐period model with intertemporal uncertainty regarding prices and the interest rate on bonds, the alternative asset. A key result of our analysis is that the standard negative relationship between money demand and the bond interest rate is seen to be part of a larger economic reality encompassing a broader range of empirically testable implications, including the possibility that the relationship may be positive. We develop formal structural restrictions under which the positive relationship between cash balance demand and the bond interest rate is not only a possible outcome, but an explicit prediction of the model.

Suggested Citation

  • Richard Dusansky & Çağatay Koç, 2009. "Demand for cash balances in a cashless economy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(3), pages 301-313, September.
    • Handle: RePEc:bla:ijethy:v:5:y:2009:i:3:p:301-313
    DOI: 10.1111/j.1742-7363.2009.00111.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1742-7363.2009.00111.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1742-7363.2009.00111.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Grandmont, Jean-Michel & Laroque, Guy, 1976. "The Liquidity Trap," Econometrica, Econometric Society, vol. 44(1), pages 129-135, January.
    2. Guy Laroque, 2006. "Tribute to Jean‐Michel Grandmont," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3‐4), pages 175-179, September.
    3. I.F. Pearce, 1958. "Demand Analysis And The Savings Function," The Economic Record, The Economic Society of Australia, vol. 34(67), pages 52-66, April.
    4. Gaetano Bloise & Herakles Polemarchakis, 2006. "Monetary policy and dynamic efficiency in economies of overlapping generations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3‐4), pages 319-330, September.
    5. Samuelson, Paul A & Sato, Ryuzo, 1984. "Unattainability of Integrability and Definiteness Conditions in the General Case of Demand for Money and Goods," American Economic Review, American Economic Association, vol. 74(4), pages 588-604, September.
    6. Pradeep Dubey & John Geanakoplos, 2006. "Money and production, and liquidity trap," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3‐4), pages 295-317, September.
    7. Dusansky, Richard, 1989. "The Demand for Money and Goods in the Theory of Consumer Choice with Money," American Economic Review, American Economic Association, vol. 79(4), pages 895-901, September.
    8. Josef Hadar, 1965. "Comparative Statics of Stock-Flow Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 73(2), pages 159-159.
    9. Berglas, Eitan & Razin, Assaf, 1974. ""Preferences, Separability, and the Patinkin Model": A Comment," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 199-201, Jan.-Feb..
    10. Lloyd, Cliff, 1971. "Preferences, Separability, and the Patinkin Model," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 642-651, May-June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. João Ricardo Faria & Peter Mcadam, 2013. "Anticipation of Future Consumption: A Monetary Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2‐3), pages 423-447, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. George Darko & Richard Dusansky & Pankaj Maskara & Nadeem Naqvi, 2006. "The gains from trade in a small monetary economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(4), pages 403-430.
    2. Richard Dusansky & David Franck & Nadeem Naqvi, 2000. "The true shadow price of foreign exchange," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 24(2), pages 206-214, June.
    3. Naqvi, Nadeem, 2008. "Real economy causes of the Great Deprivation of early 21st Century," MPRA Paper 11369, University Library of Munich, Germany.
    4. Fisher, Douglas, 1996. "Monetary aggregation in the United States and Canada," The North American Journal of Economics and Finance, Elsevier, vol. 7(1), pages 91-106.
    5. Dubey, Pradeep & Geanakoplos, John, 2003. "Monetary equilibrium with missing markets," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 585-618, July.
    6. Cysne, Rubens Penha, 2000. "Integrability and the demand for monetary assets: an alternative approach to an old problem," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 398, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Veronica Guerrieri & Guido Lorenzoni, 2017. "Credit Crises, Precautionary Savings, and the Liquidity Trap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1427-1467.
    8. Michele Piccione & Ariel Rubinstein, 2008. "Luxury Prices: An Expository Note," The Japanese Economic Review, Japanese Economic Association, vol. 59(1), pages 127-132, March.
    9. Guido Lorenzoni & Veronica Guerrieri, 2010. "Credit Crises and Liquidity Traps," 2010 Meeting Papers 1182, Society for Economic Dynamics.
    10. Feng Dong & Yi Wen, 2017. "Optimal Monetary Policy under Negative Interest Rate," Working Papers 2017-19, Federal Reserve Bank of St. Louis.
    11. Cohen, Nissim & Rubinchik, Anna & Shami, Labib, 2020. "Towards a cashless economy: Economic and socio-political implications," European Journal of Political Economy, Elsevier, vol. 61(C).
    12. Gaetano Bloise & Herakles Polemarchakis, 2017. "An Argument for Positive Nominal Interest," Studies in Economic Theory, in: Kazuo Nishimura & Alain Venditti & Nicholas C. Yannelis (ed.), Sunspots and Non-Linear Dynamics, chapter 0, pages 363-385, Springer.
    13. repec:bap:eebook:02 is not listed on IDEAS
    14. Caputo, Michael R. & Paris, Quirino, 2013. "An intertemporal microeconomic theory of disembodied and price-induced technical progress," Economic Modelling, Elsevier, vol. 33(C), pages 631-640.
    15. Michael Caputo & Quirino Paris, 2005. "An Atemporal Microeconomic Theory and an Empirical Test of Price-Induced Technical Progress," Journal of Productivity Analysis, Springer, vol. 24(3), pages 259-281, November.
    16. Jean-Michel Grandmont, 1976. "Théorie de l'équilibre temporaire général," Revue Économique, Programme National Persée, vol. 27(5), pages 805-843.
    17. Maurice Obstfeld, 1985. "The Capital Inflows Problem Revisited: A Stylized Model of Southern Cone Disinflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 605-625.
    18. Drake, Leigh & Fleissig, Adrian R., 2010. "Substitution between monetary assets and consumer goods: New evidence on the monetary transmission mechanism," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2811-2821, November.
    19. Paris, Quirino & Caputo, Michael R., 1999. "A Recurrent Utility Function of Fictitious Generality," Working Papers 11971, University of California, Davis, Department of Agricultural and Resource Economics.
    20. Isabelle Weberpals, 1997. "The Liquidity Trap: Evidence from Japan," Staff Working Papers 97-4, Bank of Canada.
    21. Hideyuki Kamiryo, 2014. "Earth Endogenous System: To Answer the Current Unsolved Economic Problems (Second Edition)," Earth Endogenous System: To Answer the Current Unsolved Economic Problems (Second Edition), Better Advances Press, Canada, edition 2, volume 2, number 01 edited by Dr. Yisheng Huang, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ijethy:v:5:y:2009:i:3:p:301-313. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1742-7355 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.