Determinants of the Demand for Cash in Peru: A Non Linear Approach

Juan Ramírez, José Vásquez and Javier Pereda
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Juan Ramírez: Banco Central de Reserva del Perú
José Vásquez: Banco Central de Reserva del Perú

No 2015-006, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper estimates the main determinants of the demand for cash in Peru from 2002 to 2013. Cash data is analyzed in two levels: considering an aggregate level, where all the notes circulating in the economy are included; and considering the type of denomination. Two sub-groups were defined: lower denomination notes (S/. 10, S/. 20 and S/. 50), and higher denomination notes (S/. 100 and S/. 200). We construct a model of the demand for cash following Adam (2000). For each sub-group, we estimate a non-linear relation with the Markov switching model method (MSM). The MSM estimation shows that the analyzed period has two different regimes. Depending on the sub-group and the regime analyzed, the results differ. The general conclusion is that low denomination notes are highly correlated with transactional variables and in a lower degree with interest rates. Meanwhile, the demand for high denomination notes is positively correlated with the ratio of dollarization and the informal sector of the economy. These results are consistent with the Cash Usage Surveys taken by the Central Bank in 2008 and in 2012.

Keywords: Cash; money demand; dollarization; informality; Markov switching model (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 Y (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-iue and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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