The demand for euro banknotes in Germany: Structural modelling and forecasting

Nikolaus Bartzsch, Franz Seitz and Ralph Setzer

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explains and forecasts the demand for banknotes issued in Germany. For small and large denomination notes we estimate vector error correction models (VECM). The results suggest that the long-run demand for German small denomination notes is mainly driven by domestic transactions and demand from outside the euro area. The transaction motive in the rest of the euro area is part of the short-term dynamics. The long-run demand for German large denomination notes is mainly driven by foreign demand both from the rest of the euro area and outside the EMU. The global financial crisis led to a one-time increase in the (real) demand for these notes. Our results are in line with estimates according to which the level and dynamics of banknote demand are mainly determined by foreign demand. Additionally, we present RegARIMA models for the medium denominations as it was not possible to build a VECM for these denominations.

Keywords: banknotes; vector error correction; RegARIMA; forecasts (search for similar items in EconPapers)
JEL-codes: C22 C32 E41 (search for similar items in EconPapers)
Date: 2015-06-10
New Economics Papers: this item is included in nep-eec, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:64949

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