Monies and Banking
Posted: 6 May 1997
Date Written: March 1997
This paper investigates the demand by households for transaction services from the financial sector. Households buy several goods with any of several media of exchange. The households choose the medium of exchange to use for each type of good, how much of each type of medium to hold, and the frequencies of commodity and financial transactions. The variety of financial services demanded by a household depends positively on the household's income, with households at the bottom of the income distribution demanding no financial services at all. Household demand for financial services also depends on how the household allocates its income among the available goods. Households with the same income but different allocations will demand different mixes of financial services. These results have several implications for the organization of the banking market, especially the location of bank branches, and the availability of banking services in different areas.
JEL Classification: G20, G21
Suggested Citation: Suggested Citation