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Determinants of the Demand for Cash in Peru: A Non Linear Approach

Author

Listed:
  • Ramírez, Juan

    (Banco Central de Reserva del Perú)

  • Vásquez, José

    (Banco Central de Reserva del Perú)

  • Pereda, Javier

    (Banco Central de Reserva del Perú)

Abstract

This paper estimates the main determinants of the demand for cash in Peru from 2002 to 2013. Cash data is analyzed in two levels: considering an aggregate level, where all the notes circulating in the economy are included; and considering the type of denomination. Two sub-groups were defined: lower denomination notes (S/. 10, S/. 20 and S/. 50), and higher denomination notes (S/. 100 and S/. 200). We construct a model of the demand for cash following Adam (2000). For each sub-group, we estimate a non-linear relation with the Markov switching model method (MSM). The MSM estimation shows that the analyzed period has two different regimes. Depending on the sub-group and the regime analyzed, the results differ. The general conclusion is that low denomination notes are highly correlated with transactional variables and in a lower degree with interest rates. Meanwhile, the demand for high denomination notes is positively correlated with the ratio of dollarization and the informal sector of the economy. These results are consistent with the Cash Usage Surveys taken by the Central Bank in 2008 and in 2012.

Suggested Citation

  • Ramírez, Juan & Vásquez, José & Pereda, Javier, 2015. "Determinants of the Demand for Cash in Peru: A Non Linear Approach," Working Papers 2015-006, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2015-006
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    References listed on IDEAS

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    Cited by:

    1. Javier Pereda Cachay, 2023. "Impacto de la pandemia de COVID-19 sobre la demanda de efectivo en el Perú," Revista de Análisis Económico y Financiero, Universidad de San Martín de Porres, vol. 6(02), pages 45-50.

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    More about this item

    Keywords

    Cash; money demand; dollarization; informality; Markov switching model;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • Y - Miscellaneous Categories
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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