Currency demand at negative policy rates

Edoardo Rainone

No 1359, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Following the implementation of negative policy rates, interest rates on bank deposits reached their historic lows, with values close or equal to zero. This paper investigates the implications of such a new environment for the demand of currency. We find evidence of a structural break in the demand of currency when rates on deposits fall below 0.1 per cent. Exploiting time, bank and banknote denomination variation, as well as exogenous reforms that affected currency payments and holdings, our analysis finds that the increase of currency in circulation seems to be mostly driven by transactions instead of store-of-value demand.

Keywords: financial stability; monetary policy; negative interest rates; deposits; zero lower bound; money demand (search for similar items in EconPapers)
JEL-codes: E41 E42 E52 E58 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-eec, nep-mac, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1359_22

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