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The money-age distribution: Empirical facts and economic modelling

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  • Burkhard Heer

    (Free University of Bolzano)

  • Alfred Maussner

    (University of Augsburg)

  • Paul McNelis

    (Fordham University)

Abstract

The money-age distribution is found to be hump-shaped for the US economy. The variation (inequality) of cash holdings within generations increases (declines) with age. Furthermore, cash holdings are found to be only weakly correlated ith both income and wealth. We analyze three motives for money demand in an overlapping generations model in order to explain this effect: 1) money in the utility, 2) an economy with costlyc credit service, and 3) limited participation. Both the simple money-in-the-utility model and the economy with the cash-credit goods are able to replicate the hump-shape profiles of cash holdings and its variation, but not the decreasing inequality within generations over age. In addition, we discuss the optimality of the Friedman rule in heterogeneous-agent economies. In the three models, zero inflation and zero nominal interest rates imply significant welfare losses

Suggested Citation

  • Burkhard Heer & Alfred Maussner & Paul McNelis, 2006. "The money-age distribution: Empirical facts and economic modelling," Computing in Economics and Finance 2006 191, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:191
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    Cited by:

    1. Yann Algan & Olivier Allais & Edouard Challe & Xavier Ragot, 2012. "Monetary Shocks Under Incomplete Markets," Working Papers hal-01169658, HAL.
    2. Olivier Allais & Yann Algan & Edouard Challe & Xavier Ragot, 2020. "The Welfare Cost of Inflation Risk under Imperfect Insurance," Annals of Economics and Statistics, GENES, issue 138, pages 1-20.
    3. repec:spo:wpmain:info:hdl:2441/562ju27dra9dnp6j4nvhq0tgfq is not listed on IDEAS
    4. repec:hal:spmain:info:hdl:2441/562ju27dra9dnp6j4nvhq0tgfq is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/3ao9avev669hj9hvol1l0lr6im is not listed on IDEAS
    6. Heer, Burkhard & Süssmuth, Bernd, 2013. "Tax bracket creep and its effects on income distribution," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 393-408.
    7. Cao, Shutao & Meh, Césaire A. & Ríos-Rull, José-Víctor & Terajima, Yaz, 2021. "The welfare cost of inflation revisited: The role of financial innovation and household heterogeneity," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 366-380.
    8. Burkhard Heer & Alfred Maußner, 2024. "Dynamic General Equilibrium Modeling," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-031-51681-8, October.
    9. Yann Algan & Xavier Ragot, 2010. "Monetary policy with Heterogeneous Agents and Borrowing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 295-316, April.
    10. Burkhard Heer, 2007. "On the Modeling of the Income Distribution Business Cycle Dynamics," CESifo Working Paper Series 1945, CESifo.
    11. Katagiri, Mitsuru & Konishi, Hideki & Ueda, Kozo, 2020. "Aging and deflation from a fiscal perspective," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 1-15.
    12. Larin, Benjamin, 2016. "Bubble-driven business cycles," Working Papers 143, University of Leipzig, Faculty of Economics and Management Science.
    13. Scharrer Christian, 2021. "The effects of financing rules in pay-as-you-go pension systems on the life and the business cycle," German Economic Review, De Gruyter, vol. 22(4), pages 489-511, November.
    14. repec:spo:wpmain:info:hdl:2441/1j0a1p4ifa98paomt4907gu4qo is not listed on IDEAS
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    16. Chang, Wen-ya & Chen, Ying-an & Chang, Juin-jen, 2013. "Growth and welfare effects of monetary policy with endogenous fertility," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 117-130.
    17. Masaya Yasuoka, 2018. "Money and Pay-As-You-Go Pension," Economies, MDPI, vol. 6(2), pages 1-15, March.
    18. repec:hal:spmain:info:hdl:2441/3ao9avev669hj9hvol1l0lr6im is not listed on IDEAS
    19. Gozluklu, Arie & Morin, Annaïg, 2019. "Stock vs. Bond yields and demographic fluctuations," Journal of Banking & Finance, Elsevier, vol. 109(C).

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    More about this item

    Keywords

    Money-age distribution; money demand;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D30 - Microeconomics - - Distribution - - - General

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