Does rounding matter for payment efficiency?

Govert Bijwaard and Philip Hans Franses

No EI 2006-43, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Theory predicts that dismissing the 1 and 2 euro cent coins from the denominational range of the euro leads to more payment efficiency. To examine whether this theory holds true in practice, we collected data for the Netherlands before and after September 1 2004, which marks the day that retail stores were allowed to round all amounts at 5 euro cents. The data consist of wallet contents for three cross sections of individuals. We propose a multivariate Poisson- log Normal model to analyze these data. We find that rounding leads to less 1 and 2 cent coins in wallets, but that still other coins are over or underrepresented, thereby suggesting that the euro range does not yet lead to fully efficient payment behavior.

Keywords: cash payment; euro denomination; maximum simulated likelihood; multivariate poisson-log normal (search for similar items in EconPapers)
JEL-codes: C15 C35 E51 (search for similar items in EconPapers)
Date: 2006-10-03
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