The Demand of Liquid Assets with Uncertain Lumpy Expenditures
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.
We thank David Andolfatto, Avner Bar-Ilan, Cyril Monnet, and Julio Rotemberg for their comments. Alvarez thanks the Templeton foundation for financial support. We are grateful to Helmut Stix for kindly providing us with the Austrian data, and to Luigi Guiso and Unicredit Bank for giving us access to the Italian investors' data. An earlier version of this paper circulated under the title "The demand for currency with uncertain lumpy purchases". See Alvarez personal webpage for full disclosure of sources of finding and relevant financial relationships. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I have visited, taught, or consulted for the following institutions, where I have received an honorarioum:
EIEF, Rome, Italy. As research visitor.
Federal Reserve Bank of Chicago, US. As consultant to the Research Department.
European Central Bank, Frankfurt, Germany. As Duisenberg Fellow as regular research visitor to the MPR division.
Toulouse School of Economics, Toulouse, France. As a research visitor.
Cowles Foundation, Yale, US. As a research visitor.
Alvarez, Fernando & Lippi, Francesco, 2013. "The demand of liquid assets with uncertain lumpy expenditures," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 753-770. citation courtesy of