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Inside the black box: tools for understanding cash circulation

Luca Baldo (), Elisa Bonifacio (), Marco Brandi (), Michelina Lo Russo (), Gianluca Maddaloni (), Andrea Nobili (), Giorgia Rocco, Gabriele Sene () and Massimo Valentini ()
Additional contact information
Luca Baldo: Bank of Italy
Elisa Bonifacio: Bank of Italy
Marco Brandi: Bank of Italy
Michelina Lo Russo: Bank of Italy
Gianluca Maddaloni: Bank of Italy
Gabriele Sene: Bank of Italy
Massimo Valentini: Bank of Italy

No 7, Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) from Bank of Italy, Directorate General for Markets and Payment System

Abstract: In this study, we assess the main drivers of banknote circulation in Italy over the last decades by using a number of econometric tools proposed in the literature. We explore the role played by the banknote flows from abroad, changes in the institutional framework and disentangle domestic demand for transaction purposes from other components, including liquidity hoarding. We find that changes in legal limits on cash payment and money holdings for precautionary reasons explain the bulk of cash dynamics. Moreover, the share of transaction demand declined over time becoming of second-order. Finally, we find that, during the pandemic from Covid-19, the exceptional raise in cash circulation was mostly the result of an increase in precautionary demand due to both economic uncertainty and restrictions to mobility that resulted into a marked decline of lodgments to the central bank.

Keywords: cash circulation; cash; payment habits; Covid-19 pandemic (search for similar items in EconPapers)
JEL-codes: E41 E42 G2 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-his, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wpmisp:mip_007_21

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