The Demand of Liquid Assets with Uncertain Lumpy Expenditures

Fernando Alvarez, Francesco Lippi

NBER Working Paper No. 18152
Issued in June 2012
NBER Program(s):   EFG

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.

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Acknowledgments and Disclosures

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