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The income elasticity of demand for cash balances in Canadian industry : an empirical investigation Scrivener, David Lionel

Abstract

This study examines the transactions demand for cash in several sectors of Canadian industry. In particular, the question of the existence of economies and diseconomies of scale in the holding of cash balances is investigated. In the estimation procedure, sales were used as an approximation of transactions. Average cash balances were regressed on average annual sales figures for fourteen industrial groups in the years 1957, 1958 and 1960. Log and ordinary linear formulations were used. Regression coefficients indicated that in the majority of cases, elasticities of cash with respect to sales were approximately unity, as the Meltzer model of the demand for cash predicts. In three out of the forty-two cases, elasticities were significantly (at the .05 level) less than unity, indicating that the Baumol-Tobin models might be relevant in some cases. In five cases, elasticities significantly greater than unity were found.

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