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An Almon Approximation of the Day of the Month Effect in Currency in Circulation

Author

Listed:
  • Kaushik Bhattacharya

    (Monetary Modelling Unit, Monetary Policy Department, Reserve Bank of India, Shahid Bhagat Singh Road, Fort, MUMBAI - 400 001)

  • Himanshu Joshi

    (Monetary Modelling Unit, Monetary Policy Department, Reserve Bank of India, Shahid Bhagat Singh Road, Fort, MUMBAI - 400 001)

Abstract

In 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.

Suggested Citation

  • Kaushik Bhattacharya & Himanshu Joshi, 2002. "An Almon Approximation of the Day of the Month Effect in Currency in Circulation," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 37(2), pages 163-174, July.
  • Handle: RePEc:dse:indecr:v:37:y:2002:i:2:p:163-174
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    References listed on IDEAS

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    Cited by:

    1. Kaushik Bhattacharya & Sunny Kumar Singh, 2016. "Impact of Payment Technology on Seasonality of Currency in Circulation: Evidence from the USA and India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(1), pages 117-136, June.
    2. Kaushik Bhattacharya, 2011. "Demand and Supply of Currencies of Small Denominations: A Theoretical Framework," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(2), pages 123-139, July.

    More about this item

    Keywords

    Day of the Month Effect; Currency in Circulation; Almon Lag;

    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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