Payment Innovations, the Shadow Economy and Cash Demand of Households in Euro Area Countries

27 Pages Posted: 1 Oct 2020

See all articles by Hans-Eggert Reimers

Hans-Eggert Reimers

affiliation not provided to SSRN

Friedrich Schneider

affiliation not provided to SSRN

Franz Seitz

Technical University of Applied Sciences Weiden

Date Written: 2020

Abstract

We analyze for the first time cash holdings of private households in all euro area countries from 2002 to 2019 within a panel cointegration framework. Besides the traditional determinants of cash demand like transactions balances and opportunity costs, we concentrate on cashless payments media as substitutes to cash payments and the role of the shadow economy. Moreover, we take due account of country-specific repercussions of the financial and economic crisis of 2008/09, time series properties and distinguish between small and large countries. We find a significant and positive relationship among households' cash holdings, the volume of transactions and the size of the shadow economy irrespective of country size for all euro area countries over our sample period. Additionally, there is a substitution relationship between the accessibility and availability of cashless payments media and cash demand. And a decreasing number of ATMs reduces cash holdings. These results have important political and financial implications.

Keywords: cash, cashless payments, shadow economy, cash demand function, panel cointegration

JEL Classification: C230, E410, E580

Suggested Citation

Reimers, Hans-Eggert and Schneider, Friedrich and Seitz, Franz, Payment Innovations, the Shadow Economy and Cash Demand of Households in Euro Area Countries (2020). CESifo Working Paper No. 8574, Available at SSRN: https://ssrn.com/abstract=3702126

Hans-Eggert Reimers (Contact Author)

affiliation not provided to SSRN

No Address Available

Friedrich Schneider

affiliation not provided to SSRN

No Address Available

Franz Seitz

Technical University of Applied Sciences Weiden ( email )

Hetzenrichter Weg 15
D-92637 Weiden i.d. Opf
Germany
(49) 961-382-1318 (Fax)

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