The Demand for Liquid Asset with Uncertain Lumpy Expenditures
We consider an inventory model for 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 the implied observable statistics. We use our characterization to understand aspects of the the management of currency of Austrian households, as well as the management of liquid asset of Italian investors.
This paper was presented at the Optimal Design of Payments Systems Workshop in May of 2011.