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Optimal Spending and Money Holdings in the Presence of Liquidity Constraints
Elhanan Helpman
Abstract
For an individual with a time independent flow of real income who maximizes the discounted flow of utilities over an infinite horizon, the paper provides an exact characterization of the expenditure and money demand functions. Utility is derived only from consumption while all payments are made in the form of money. Money, which is the only asset, is used both for transaction purposes and as a store of value.
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