A Neoclassical Analysis of the Demand for Real Cash Balances by Firms
Journal of Political Economy
1978
This paper presents the results of an evaluation of the role of real cash balances as a factor input for 11 two-digit SIC code industries over the period 1952-73. Using a four-factor translog cost function for each industry along with duality theory, it was possible to estimate the partial elasticities of substitution and the elasticities of demand for all factors. The substitution elasticities between real cash balances and production labor as well as with capital were found to be significantly different from zero. The interest elasticity of demand for each varies with industry and ranges from -.22 to -.41. The overall findings suggest that the neoclassical model offers considerable promise for modeling the firm's demand for money.
- DOI
- 10.1086/260712
- Volume
- 86 (5)
- Pages
- 793-813
- Language
- en
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