Currency demand stability in the presence of seasonality and endogenous financial innovation

Abstract

Based on the money-in-the-utility function, this paper intends to examine the stability of the currency demand function for India with real private consumption expenditure, tax-GDP ratio and deposit rate as explanatory variables by applying the seasonal cointegration technique developed by EGHL (1993) and HEGY (1990) for the period 1996:1 to 2014:4. The empirical findings show that there is absence of long-run cointegrationg relationship among the variables at the zero and annual frequency, however, there is evidence of a relationship among the variables at the biannual frequency. Moreover, the time-varying coefficient of deposit rate elasticity, used to test the Gurley-Shaw hypothesis, suggests that innovations in financial markets, especially improvements in the payment technology, raises the deposit rate elasticity, beginning from 2010 onward.

The Impact of Digital Currency on Demand for Money: Evidence from Indonesia

“…"Digital currency is an asset stored in electronic form that can serve essentially the same function as physical currency, namely, facilitating payments transactions. Central bank digital currency refers to money that meets the following criteria [4], [6], [7], [27], [28]:…”