The Demand of Liquid Assets with Uncertain Lumpy Expenditures
NBER Working Paper No. 18152
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.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.