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

Kaushik Bhattacharya () and Sunny Kumar Singh ()
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Kaushik Bhattacharya: Indian Institute of Management
Sunny Kumar Singh: Indian Institute of Management

Journal of Quantitative Economics, 2016, vol. 14, issue 1, No 6, 117-136

Abstract: 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.

Keywords: Currency in circulation; Seasonality; Payment system; Inventory theory of money; Baumol–Tobin model; Gompertz curve (search for similar items in EconPapers)
JEL-codes: C32 C53 E41 E47 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s40953-015-0024-1

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