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The (Un)Demand for Money in Canada

Geoffrey Dunbar and Casey Jones

Staff Working Papers from Bank of Canada

Abstract: A novel dataset from the Bank of Canada is used to estimate the deposit functions for banknotes in Canada for three denominations: $1,000, $100 and $50. The broad flavour of the empirical findings is that denominations are different monies, and the structural estimates identify the underlying sources of the non-neutrality. There is evidence of large and significant deposit costs for the highest-value denomination, the $1,000 banknote, but insignificant costs for the $100 and $50 denominations. The results imply that the interest rate elasticity of deposit is positive for the $1,000 but negative for the $100 and the $50. Third, 5 percent of the $1,000, 30 percent of the $100 and 22 percent of the $50 banknotes ever issued by the Bank of Canada do not circulate through financial institutions (in Canada). Finally, we find evidence that the Lehman Brothers crisis increased the deposit probability by a factor of 2–3 for the $1,000 banknote for a majority of the population in Canada.

Keywords: Bank notes; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: C31 C36 E41 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2018
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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