Money demand: Cash-in-advance meets shopping time

Gillman, Max and Otto, Glenn 2002. Money demand: Cash-in-advance meets shopping time. [Working Paper]. CEU Economics Department working papers, vol. 3/2002. Budapest: Central European University. Economics Department.

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Abstract

The paper presents a theory of the demand for money that combines a special case of the shopping time exchange economy with the cash-in-advance framework. The model predicts that both higher inflation and financial innovation - that reduces the cost of credit - induces agents to substitute away from money towards exchange credit. This results in an interest elasticity of money that rises with the inflation rate rather than the constant elasticity found in standard shopping time specifications. A number of the key predictions of the banking time theory are tested using quarterly data for the US and Australia. We find empirical support for some aspects of the model.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Uncontrolled Keywords:	Money demand; cointegration; financial technology; banking time
Publisher:	Central European University. Economics Department
Last Modified:	19 Mar 2016 23:14
URI:	https://orca.cardiff.ac.uk/id/eprint/43940

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