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 (1996) 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 inmoney demand. Our estimates show that 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.
Scale Economies and Heterogeneity in Business Money Demand: the Italian Experience
GROSSI, Luigi;
2015-01-01
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 (1996) 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 inmoney demand. Our estimates show that 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.
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