Financial Innovation and the Transactions Demand for Cash

@article{lvarez2007FinancialIA,
  title={Financial Innovation and the Transactions Demand for Cash},
  author={Fernando {\'A}lvarez and F. Lippi},
  journal={Diffusion of Innovation eJournal},
  year={2007}
}
We document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives. We extend the Baumol-Tobin cash inventory model to a dynamic environment that allows for the possibility of withdrawing cash at random times at a low cost. This modification introduces a precautionary motive for holding cash and naturally captures developments in withdrawal technology, such as the increasing diffusion of bank… Expand
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