Working Paper: NBER ID: w18152
Authors: Fernando Alvarez; Francesco Lippi
Abstract: 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.
Keywords: liquid assets; lumpy expenditures; cash management; household finance
JEL Codes: E41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of lumpy purchases (Y20) | unique relationship between liquidity withdrawals and average cash holdings (E41) |
| size of large purchases increases (E20) | average size of withdrawals increases (D14) |
| expenditure characteristics (H50) | cash management behavior (D14) |
| significant lumpy expenditures (H72) | different withdrawal behaviors (D91) |
| frequency and size of withdrawals correlate with importance of lumpy expenditures (E21) | establishes causal link between expenditure characteristics and cash management strategies (G31) |