IDEAS home Printed from https://ideas.repec.org/p/fip/fedbwp/14-5.html
   My bibliography  Save this paper

This is what's in your wallet... and here's how you use it

Author

Listed:
  • Tamas Briglevics
  • Scott Schuh

Abstract

Models of money demand, in the Baumol (1952)-Tobin (1956) tradition, describe optimal cash management policy in terms of when and how much cash to withdraw, an (s, S) policy. However, today, a vast array of instruments can be used to make payments, opening additional ways to control cash holdings. This paper utilizes data from the 2012 Diary of Consumer Payment Choice to simultaneously analyze payment instrument choice and withdrawals. We use the insights in Rust (1987) to extend existing models of payment instrument choice into a dynamic setting to study cash management. Our estimates show that withdrawals are rather costly relative to the benefits of having cash. It takes 3-8 transactions to recoup the fixed withdrawal costs. The reason is that the shadow value of cash decreases substantially with the number of available payment instruments and, correspondingly, individuals are less likely to make withdrawals.

Suggested Citation

  • Tamas Briglevics & Scott Schuh, 2014. "This is what's in your wallet... and here's how you use it," Working Papers 14-5, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:14-5
    as

    Download full text from publisher

    File URL: http://www.bostonfed.org/economic/wp/wp2014/wp1405.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klee, Elizabeth, 2008. "How people pay: Evidence from grocery store data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 526-541, April.
    2. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    3. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    4. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    5. Ulf Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Choosing and using payment instruments: evidence from German microdata," Empirical Economics, Springer, vol. 46(3), pages 1019-1055, May.
    6. Sergei Koulayev & Marc Rysman & Scott Schuh & Joanna Stavins, 2016. "Explaining adoption and use of payment instruments by US consumers," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 293-325, May.
    7. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    8. Michael Cohen & Marc Rysman, 2012. "Payment choice with consumer panel data," Working Papers 13, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    9. Nosal, Ed & Rocheteau, Guillaume, 2011. "Money, Payments, and Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016281, December.
    10. Eschelbach, Martina & Schmidt, Tobias, 2013. "Precautionary motives in short-term cash management: Evidence from German POS transactions," Discussion Papers 38/2013, Deutsche Bundesbank.
    11. Yassine Bouhdaoui & David Bounie, 2012. "Modeling the Share of Cash Payments in the Economy: An Application to France," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 175-195, December.
    12. Merton H. Miller & Daniel Orr, 1966. "A Model of the Demand for Money by Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(3), pages 413-435.
    13. Ben Fung & Kim Huynh & Leonard Sabetti, 2012. "The Impact of Retail Payment Innovations on Cash Usage," Staff Working Papers 12-14, Bank of Canada.
    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. Fernando Alvarez & David Argente, 2022. "On the Effects of the Availability of Means of Payments: The Case of Uber," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1737-1789.
    2. Martin Brown & Nicole Hentschel & Hannes Mettler & Helmut Stix, 2020. "Financial Innovation, Payment Choice and Cash Demand – Causal Evidence from the Staggered Introduction of Contactless Debit Cards (Martin Brown,Nicole Hentschel, Hannes Mettler, Helmut Stix)," Working Papers 230, Oesterreichische Nationalbank (Austrian Central Bank).
    3. Alvarez, Fernando & Argente, David & Jimenez, Rafael & Lippi, Francesco, 2022. "Cash: A Blessing or a curse?," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 85-128.
    4. Claire Greene & Oz Shy, 2020. "How Consumers Get Cash: Evidence from a Diary Survey," Consumer Payments Research Data Reports 2019-1, Federal Reserve Bank of Atlanta.
    5. Wang, Zhu & Wolman, Alexander L., 2016. "Payment choice and currency use: Insights from two billion retail transactions," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 94-115.
    6. Martin Brown & Nicole Hentschel & Hannes Mettler & Helmut Stix, 2020. "Financial Innovation, Payment Choice and Cash Demand - Causal Evidence from the Staggered Introduction of Contactless Debit Cards," Working Papers on Finance 2002, University of St. Gallen, School of Finance.

    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. Briglevics, Tamás & Schuh, Scott, 2014. "This is what's in your wallet... and how you use it," Working Paper Series 1684, European Central Bank.
    2. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    3. Tamás Briglevics & Scott Schuh, 2020. "This Is What's in Your Wallet...and Here's How You Use It," Working Papers 20-04, Department of Economics, West Virginia University.
    4. Tobias Trütsch, 2016. "The impact of mobile payment on payment choice," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 299-336, August.
    5. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2015. "Consumer payment choice: Merchant card acceptance versus pricing incentives," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 130-141.
    6. Tamas Briglevics & Scott Schuh, 2013. "U.S. consumer demand for cash in the era of low interest rates and electronic payments," Working Papers 13-23, Federal Reserve Bank of Boston.
    7. repec:zbw:bofrdp:2015_022 is not listed on IDEAS
    8. Carlos Arango & Yassine Bouhdaoui & David Bounie & Martina Eschelbach & Lola Hernández, 2013. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Staff Working Papers 13-53, Bank of Canada.
    9. repec:zbw:bofrdp:urn:nbn:fi:bof-201511251450 is not listed on IDEAS
    10. Liang Wang & Randall Wright & Lucy Qian Liu, 2020. "Sticky Prices And Costly Credit," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 37-70, February.
    11. repec:bof:bofrdp:urn:nbn:fi:bof-201511251450 is not listed on IDEAS
    12. Naoki Wakamori & Angelika Welte, 2017. "Why Do Shoppers Use Cash? Evidence from Shopping Diary Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(1), pages 115-169, February.
    13. Arango-Arango, Carlos A. & Bouhdaoui, Yassine & Bounie, David & Eschelbach, Martina & Hernandez, Lola, 2018. "Cash remains top-of-wallet! International evidence from payment diaries," Economic Modelling, Elsevier, vol. 69(C), pages 38-48.
    14. Tobias Trütsch, 2020. "The impact of contactless payment on cash usage at an early stage of diffusion," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-35, December.
    15. Hartmann, Monika & Gijsel, Lola Hernandez-van & Plooij, Mirjam & Vandeweyer, Quentin, 2019. "Are instant payments becoming the new normal? A comparative study," Occasional Paper Series 229, European Central Bank.
    16. Eschelbach, Martina & Schmidt, Tobias, 2013. "Precautionary motives in short-term cash management: Evidence from German POS transactions," Discussion Papers 38/2013, Deutsche Bundesbank.
    17. Jasmina Arifovic & John Duffy & Janet Jiang, 2017. "Adoption of a New Payment System: Theory and Experimental Evidence," Working Papers 171801, University of California-Irvine, Department of Economics.
    18. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco & Sánchez-Béjar, José Juan, 2023. "Mobility restrictions and payment choices: The case of the Covid-19 pandemic," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    19. Jasmina Arifovic & John Duffy & Janet Hua Jiang, 2017. "Adoption of a New Payment Method: Theory and Experimental Evidence," Staff Working Papers 17-28, Bank of Canada.
    20. Carlos Arango & Yassine Bouhdaoui & David Bounie & Martina Eschelbach & Lola Hernández, 2013. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Staff Working Papers 13-53, Bank of Canada.
    21. Martin Brown & Nicole Hentschel & Hannes Mettler & Helmut Stix, 2020. "Financial Innovation, Payment Choice and Cash Demand - Causal Evidence from the Staggered Introduction of Contactless Debit Cards," Working Papers on Finance 2002, University of St. Gallen, School of Finance.
    22. Esselink, Henk & Gijsel, Lola Hernandez-van, 2017. "The use of cash by households in the euro area," Occasional Paper Series 201, European Central Bank.
    23. Tamás Ilyés & Lóránt Varga, 2015. "A General Equilibrium Approach of Retail Payments," MNB Working Papers 2015/3, Magyar Nemzeti Bank (Central Bank of Hungary).

    More about this item

    Keywords

    money demand; inventory management; payment instrument choice; payment cards; Diary of Consumer Payment Choice;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fip:fedbwp:14-5. 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: Catherine Spozio (email available below). General contact details of provider: https://edirc.repec.org/data/frbbous.html .

    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.