An Almon Approximation of the Day of the Month Effect in Currency in Circulation
AbstractIn recent years, increasing importance of active day-to-day asset-liability management by banks and liquidity management by central banks renders that short-term seasonalities in monetary series should be studied minutely. Currency in circulation is a typical example of such a series that displays strong intra-month seasonality. Earlier, the intra-month seasonality in currency in circulation in India had been modeled by dummy variables pertaining to specific days of months (Bhattacharya and Joshi, 2001). The paper reports a parsimonious representation of the Bhattacharya and Joshi (2001) model by approximating the coefficients pertaining to the thirty-one 'day of the month' dummies by a polynomial. The extension is interesting because it provides an example of polynomial approximation of coefficients pertaining to a group of indexed dummy variables, rather than lagged dependent or independent variables as in a standard Almon (1965) scheme. For a degree four approximation, an empirical comparison of the two models reveals marginal difference in explanatory powers and forecasting abilities.
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Bibliographic InfoArticle provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.
Volume (Year): 37 (2002)
Issue (Month): 2 (July)
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Find related papers by JEL classification:
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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- Kaushik Bhattacharya, 2011.
"Demand and Supply of Currencies of Small Denominations: A Theoretical Framework,"
Journal of Quantitative Economics, The Indian Econometric Society,
The Indian Econometric Society, vol. 9(2), pages 123-139, July.
- Bhattacharya, Kaushik, 2009. "Demand and Supply of Currencies of Small Denominations: A Theoretical Framework," MPRA Paper 27334, University Library of Munich, Germany.
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