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Impact of Payment Technology on Seasonality of Currency in Circulation: Evidence from the USA and India

Author

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  • Kaushik Bhattacharya

    (Indian Institute of Management)

  • Sunny Kumar Singh

    (Indian Institute of Management)

Abstract

This paper examines the impact of payment technology on seasonality in currency in circulation. We specify that total transaction in a period follows a Gompertz distribution over time and extend the standard Baumol–Tobin model to obtain a nonlinear expression of currency growth. In contrast to linear dummy variable models that reflect fixed seasonality, our theoretical results reflect gradually decaying seasonal coefficients over time and suggest that in the long-run, growth-in currency holdings would not be seasonal but would be affected by interest rate shocks only. Empirical applications of the model for the USA and India reveal its superior performance compared to linear dummy variable models with fixed seasonality.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:jqecon:v:14:y:2016:i:1:d:10.1007_s40953-015-0024-1
    DOI: 10.1007/s40953-015-0024-1
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    More about this item

    Keywords

    Currency in circulation; Seasonality; Payment system; Inventory theory of money; Baumol–Tobin model; Gompertz curve;
    All these keywords.

    JEL classification:

    • 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
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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