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Demand for Currency, New Technology and the Adoption of Electronic Money: Evidence Using Individual Household Data

  • Hiroshi Fujiki

    (Associate Director-General and Senior Monetary Affairs Department, Bank of Japan (E-mail: hiroshi.fujiki @boj.or.jp))

  • Migiwa Tanaka

    (Assistant Professor, Department of Economics, School of Business and Management, The Hong Kong University of Science and Technology (E-mail: mtanaka@ust.hk))

Accurate information on money demand is essential for evaluation of monetary policy. In this regard, it is important to study the effect of financial innovation to money demand. We investigate the effect of a new form of such technology, electronic money, to money demand. Specifically, we estimate currency demand functions conditional on electronic money adoption using unique household-level survey data from Japan. We obtain the following results. First, currency demand indicates that average cash balances do not decrease with the adoption of electronic money. Rather, it seems to increase under some specifications. Second, households at the lowest quantile of the cash balance distribution tend to have higher cash balances after adopting of electronic money. These findings indicate that consumers do not significantly substitute cash holding with e-money holding despite the rapid diffusion of electronic money among households.

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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-27.

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Date of creation: Nov 2009
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Handle: RePEc:ime:imedps:09-e-27
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  1. Hiroshi Fujiki & Etsuro Shioji, 2006. "Bank Health Concerns, Low Interest Rates, and Money Demand: Evidence from the Public Opinion Survey on Household Financial Assets and Liabilities," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(2), pages 73-124, November.
  2. Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April.
  3. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  4. Victor Chernozhukov & Christian Hansen, 2005. "An IV Model of Quantile Treatment Effects," Econometrica, Econometric Society, vol. 73(1), pages 245-261, 01.
  5. Helmut Stix, 2003. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Working Papers 82, Oesterreichische Nationalbank (Austrian Central Bank).
  6. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier.
  7. Lippi, Francesco & Secchi, Alessandro, 2009. "Technological change and the households' demand for currency," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 222-230, March.
  8. Eugene Amromin & Sujit Chakravorti, 2007. "Debit card and cash usage: a cross-country analysis," Working Paper Series WP-07-04, Federal Reserve Bank of Chicago.
  9. Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics.
  10. Peter Mooslechner & Helmut Stix & Karin Wagner, 2006. "How Are Payments Made in Austria?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 111–134.
  11. Duca, John V & Whitesell, William C, 1995. "Credit Cards and Money Demand: A Cross-sectional Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 604-23, May.
  12. Jean Tirole & Jean-Charles Rochet, 2006. "Two-Sided Markets : A Progress Report," Post-Print hal-00173715, HAL.
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