NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cash burns: An inventory model with a cash-credit choice

Fernando Alvarez, Francesco Lippi

NBER Working Paper No. 21110
Issued in April 2015
NBER Program(s):   EFG   ME

We present a model that characterizes the relationship between optimal dynamic cash management and the choice of the means of payment. The novel feature of the model is the sequential nature of the payments choice: in each instant the agent can choose to pay with either cash or credit. This framework predicts that the current level of the stock of cash determines whether the agent uses cash or credit. Cash is used whenever the agent has enough of it, credit is used when cash holdings are low, a pattern recently documented by households data from several countries. The average level of cash and the average share of expenditures paid in cash depend on the opportunity cost of cash relative to the cost of credit. The model produces a rich set of over-identifying restrictions for consumers’ cash-management and payment choices which can be tested using recent households survey and diary data.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21110

Users who downloaded this paper also downloaded* these:
Buera, Kaboski, and Shin w21107 Entrepreneurship and Financial Frictions: A Macro-Development Perspective
De Nardi w21106 Quantitative Models of Wealth Inequality: A Survey
Stevenson and Wolfers w14969 The Paradox of Declining Female Happiness
McDonald and Paulson w21108 AIG in Hindsight
Borjas, Doran, and Shen w21096 Ethnic Complementarities after the Opening of China: How Chinese Graduate Students Affected the Productivity of Their Advisors
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us