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The Demand of Liquid Assets with Uncertain Lumpy Expenditures

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  • Fernando Alvarez
  • Francesco Lippi

Abstract

We consider an inventory model for a liquid asset where the per-period net expenditures have two components: one that is frequent and small and another that is infrequent and large. We give a theoretical characterization of the optimal management of liquid asset as well as of the implied observable statistics. We use our characterization to interpret some aspects of households' currency management in Austria, as well as the management of demand deposits by a large sample of Italian investors.

Suggested Citation

  • Fernando Alvarez & Francesco Lippi, 2012. "The Demand of Liquid Assets with Uncertain Lumpy Expenditures," NBER Working Papers 18152, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18152
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    Cited by:

    1. Rocheteau, Guillaume & Weill, Pierre-Olivier & Wong, Russell, 2018. "A tractable model of monetary exchange with ex-post heterogeneity," Theoretical Economics, Econometric Society, vol. 13(3), September.
    2. Fernando Alvarez & Francesco Lippi & Roberto Robatto, 2019. "Cost of Inflation in Inventory Theoretical Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 206-226, April.
    3. Alvarez, Fernando & Lippi, Francesco, 2017. "Cash burns: An inventory model with a cash-credit choice," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 99-112.
    4. Zeno Enders, 2020. "Heterogeneous Consumers, Segmented Asset Markets and the Real Effects of Monetary Policy," The Economic Journal, Royal Economic Society, vol. 130(628), pages 1031-1056.
    5. Heng Chen & Marie-Hélène Felt & Kim P. Huynh, 2017. "Retail payment innovations and cash usage: accounting for attrition by using refreshment samples," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 180(2), pages 503-530, February.
    6. Lin William Cong & Ye Li & Neng Wang, 2021. "Tokenomics: Dynamic Adoption and Valuation [The demand of liquid assets with uncertain lumpy expenditures]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1105-1155.
    7. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2013. "Small and Large Price Changes and the Propagation of Monetary Shocks," EIEF Working Papers Series 1318, Einaudi Institute for Economics and Finance (EIEF), revised Aug 2013.
    8. Rocheteau, Guillaume & Weill, Pierre-Olivier & Wong, Tsz-Nga, 2021. "An heterogeneous-agent New-Monetarist model with an application to unemployment," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 64-90.
    9. 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.
    10. 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.
    11. Rocheteau, Guillaume & Rodriguez-Lopez, Antonio, 2014. "Liquidity provision, interest rates, and unemployment," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 80-101.
    12. Herrenbrueck, Lucas, 2019. "Frictional asset markets and the liquidity channel of monetary policy," Journal of Economic Theory, Elsevier, vol. 181(C), pages 82-120.
    13. Barron, Yonit, 2023. "A stochastic card balance management problem with continuous and batch-type bilateral transactions," Operations Research Perspectives, Elsevier, vol. 10(C).

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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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