The Impact of Technological Change on the Currency Behavior of Households: An Empirical Cross-Section Study

By Daniels, Kenneth N.; Murphy, Neil B. | Journal of Money, Credit & Banking, November 1994 | Go to article overview

The Impact of Technological Change on the Currency Behavior of Households: An Empirical Cross-Section Study


Daniels, Kenneth N., Murphy, Neil B., Journal of Money, Credit & Banking


In recent years, there has been a substantial change in the arrangements by which households can manage their transactions balances. The removal of Regulation Q and the introduction of NOW accounts has changed the attractiveness of holding transactions balances and influenced the relationships between the monetary aggregates and other macroeconomic variables. There has been a simultaneous change in the deployment by banks of over 60,000 automatic teller machines (ATMs) and the acceptance of direct deposit of payroll and other payments to households, especially Social Security payments. These technological developments presumably affect various transactions costs of households in managing their transactions balances. In particular, these developments have important implications for the demand for currency by households. It has been shown that sophisticated corporate cash balance management techniques, making intensive use of technology, have affected the demand for money (Kimball 1980 and Dotsey 1984). There has been little systematic study of the impact on household behavior, however. The purpose of this paper is to analyze the impact of technology on the currency inventory behavior of two large samples of households in the United States. If technology affects transactions costs of obtaining an inventory of currency, then inventory theory would suggest that this should lead to more transactions and lower average inventories of currency, ceteris paribus. This hypothesis is tested in this paper.

In section 1, the model is developed. In section 2, the data source and the empirical findings are discussed. Section 3 the subject is summarized and concluded. Using data from two large surveys in the mid-1980s, the results of this paper indicate that technology has a substantial impact on the behavior of households in holding currency inventories.

1. MODEL DEVELOPMENT

The theory of the demand for currency has its roots in the theory of the demand for money first put forth by Baumol (1952) and Tobin (1956). These contributions adapted developments in inventory theory for examining the demand for money. In general, the demand for money was viewed as related to the amount of expenditure to be financed (the scale variable), the cost of a transaction between money and an alternative interest-bearing asset ("bonds"), and the interest return on the alternative asset. The money inventory was directly related to the scale variable, but there were economies of scale, the elasticity of demand being exactly 1/2 in a deterministic model. Higher interest rates raised the opportunity cost of holding money, leading to lower inventories, while higher transactions costs of exchanging money and "bonds" would lead to higher inventories. An explicit model of household money demand was developed by Santomero (1974) in which the traditional definition of "money" was expanded to include both bank deposits and currency. This type model was recently applied to aggregate data by Dotsey (1986, 1988). Most of the empirical studies of the past twenty-five years have utilized time-series aggregate data (Cagan 1958; Hess 1971; Fry 1974; Becker 1975; Lewis and Breen 1975; Garcia and Pak 1976; Boughton and Wicker 1979; and Ochs and Rush 1983). Of course, while aggregate time-series studies are useful, cross-section studies provide a more direct test because they utilize individuals and households as units of observation and thereby avoid the serious problem of aggregation bias.

In this paper, the household is viewed as making a hierarchy of decisions. First is the choice between consumption and saving, and we take this choice as given. Next, the household chooses between different payment media in making purchases. The choice among paying by check, currency, or with a credit card is determined by relative costs and benefits, including such considerations as the time spent in conducting the transaction, the risk involved in carrying the different payment media, the need for a payment record, and the desirability of deferred payment. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Impact of Technological Change on the Currency Behavior of Households: An Empirical Cross-Section Study
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.