English, Article, Journal or magazine article edition: Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy Casey B. Mulligan; Xavier Sala-i-Martin

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/153821
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy
Author
  • Casey B. Mulligan
  • Xavier Sala-i-Martin
Physical Description
  • preprint
Notes
  • In this paper we argue that inventory models are probably not useful models of household money demand because the majority of households does not hold any interest bearing assets. The relevant decision for most people is not the fraction of assets to be held in interest bearing form, but whether to hold any of such assets at all. The implications of this realization are interesting and important. We find that (a) the elasticity of money demand is very small when the interest rate is small, (b) the probability that a household holds any amount of interest bearing assets is positively related to the level of financial assets, and (c) the cost of adopting financial technologies is positively related to age and negatively related to the level of education. Unlike the traditional methods of money demand estimation, our methodology allows for the estimation of the interest--elasticity at low values of the nominal interest rate. The finding that the elasticity is very small for interest rates below 5 percent suggests that the welfare costs of inflation are small. At interest rates of 6 percent, the elasticity is close to 0.5. We find that roughly one half of this elasticity can be attributed to the Baumol--Tobin or intensive margin and half of it can be attributed to the new adopters or extensive margin. The intensive margin is less important at lower interest rates and more important at higher interest rates.
  • RePEc:upf:upfgen:134
  • In this paper we argue that the relevant decision for the majority of US households is not the fraction of assets to be held in interest bearing form, but whether to hold any of such assets at all (we call this `the decision to adopt' the financial technology). We show that the key variable governing the adoption decision is the product of the interest rate times the total amount of assets. The implication is that, instead of studying money demand using time series and looking at historical interest rate variations, we can look at a cross-section of households and analyze variations in the amount of assets held. We can use this methodology to estimate the interest elasticity of money demand at interest rates close to zero. We find that (a) the elasticity of money demand is very small when the interest rate is small, (b) the probability that a household holds any amount of interest bearing assets is positively related to the level of financial assets, and (c) the cost of adopting financial technologies is positively related to age and negatively related to the level of education. The finding that the elasticity is very small for interest rates below 5 percent suggests that the welfare costs of inflation are small. We also find that at interest rates of 6 percent, the elasticity is close to 0.5. We find that roughly one half of this elasticity can be attributed to the Baumol-Tobin or intensive margin and half of it can be attributed to the new adopters or extensive margin. The intensive margin is less important at lower interest rates and more important at higher interest rates.
  • RePEc:nbr:nberwo:5504
Language
  • English
Contributed by
OAIster

Get this edition

Other links

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment