Get access

SCALE ECONOMIES AND HETEROGENEITY IN BUSINESS MONEY DEMAND: THE ITALIAN EXPERIENCE

Authors


  • We wish to thank Prof. Chris Martin, Dr. Roberto Tedeschi, and Prof. Giovanni Verga for their useful comments that greatly improved the paper. Valuable suggestions by two anonymous referees and by the Editors have contributed to improvement of the quality of the paper. The usual disclaimer applies and any remaining errors are our own responsibility.

ABSTRACT

This paper investigates the demand for money by firms and the existence of economies of scale in the Italian manufacturing industry. We estimate a model for cash elaborated by Fujiki and Mulligan using a different estimation procedure from the previous literature. We then introduce an iterative procedure based on backward exclusion of firms from model estimation which points out the high heterogeneity of Italian companies in money demand. Our estimates show that the Italian manufacturing industry, considered as a whole, does not enjoy scale economies in money demand. However, our iterative procedure points out that the cause of this result has to be ascribed to small firms which are characterized by thin cash money holdings and a consequent very modest opportunity cost.

Get access to the full text of this article

Ancillary