Cash Management and Payment Choices: A Simulation Model with International Comparisons
AbstractDespite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper develops a simulation model to test whether standard implications of the theory on cash management and payment choices can explain the use of payment instruments by transaction size. In particular, using diary survey data from Canada, France, Germany and the Netherlands, we test the assumption that cash is still the most efficient payment instrument, and the idea that people hold cash for precautionary reasons when facing uncertainty about their future purchases. The results of the simulations show that these two factors are significant determinants of the high shares of low-value cash payments in Canada, France and Germany. Yet, they are not so crucial in the Netherlands, which exhibits a significant share of low-value card transactions. We discuss how the differences in payment markets across countries may explain the differences in the performance of the model.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 13-53.
Length: 26 pages
Date of creation: 2013
Date of revision:
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Bank notes; Financial services; International topics;
Other versions of this item:
- Carlos Arango & Yassine Bouhdaouiz & David Bounie & Martina Eschelbach & LOla Hernández, 2014. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Borradores de Economia 804, Banco de la Republica de Colombia.
- Arango, Carlos & Bouhdaoui, Yassine & Bounie, David & Eschelbach, Martina & Hernández, Lola, 2014. "Cash management and payment choices: A simulation model with international comparisons," Discussion Papers 04/2014, Deutsche Bundesbank, Research Centre.
- Carlos Arango & Yassine Bouhdaoui & David Bounie & Martina Eschelbach & Lola Hern�ndez, 2014. "Cash management and payment choices: A simulation model with international comparisons," DNB Working Papers 409, Netherlands Central Bank, Research Department.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
- NEP-EUR-2014-01-10 (Microeconomic European Issues)
- NEP-MAC-2014-01-10 (Macroeconomics)
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