The transaction role of real money balances in the theory of firm

This thesis investigates the role that money plays in relation to the "transactions technology" of the firm where money holdings are viewed as an integral part of the firm's exchange activities. Holding buffer stocks of money allows the firm to lower the costs of bunching some types of transactions while permitting the separation of others over time. This approach allows the integration of real and money sectors through the theory of the firm.;Chapter I motivates the analysis by reviewing the evidence on the importance of transactions costs in the theory of the firm. Chapter II sets up a dynamic model of the firm and derives the Euler equations that emphasize the interrelationship between the firm's money holding and capital accumulation decisions.;Chapter III derives the stationary state characteristics of the model and shows the stability properties of the model through an analysis of the conditions for convergence to the stationary state.;Chapters IV and V describe the technique used to estimate the model (the generalised method of moments) and the sources and transformation features of the data set.;Chapter VI presents the empirical findings of the thesis. The results show that while the money-augmented model is consistent with the data, the data does not allow us to conclude that the money-augmented model is superior to its traditional alternatives. A money-augmented model may be preferred over a simple model, however, because it permits comparative static analysis showing the channels through which money can affect the real variables in the model. It also gives insight to the way that stable monetary policy may promote income and employment growth in the economy.;Chapter VII concludes the thesis by summarizing the main argument and bringing together the major conclusions.