Currency Demand at Negative Policy Rates

85 Pages Posted: 11 Feb 2022

Date Written: February 2, 2022

Abstract

Following the implementation of negative policy rates, interest rates on bank deposits reached their historic lows, with values close or equal to zero. This paper investigates the implications of such a new environment for the demand of currency. We find evidence of a structural break in the demand of currency when rates on deposits fall below 0.1 per cent. Exploiting time, bank and banknote denomination variation, as well as exogenous reforms that affected currency payments and holdings, our analysis finds that the increase of currency in circulation seems to be mostly driven by transactions instead of store-of-value demand.

Keywords: financial stability, monetary policy, negative interest rates, deposits, zero lower bound, money demand

JEL Classification: E41, E42, E52, E58

Suggested Citation

Rainone, Edoardo, Currency Demand at Negative Policy Rates (February 2, 2022). Bank of Italy Temi di Discussione (Working Paper) No. 1359, Available at SSRN: https://ssrn.com/abstract=4032793 or http://dx.doi.org/10.2139/ssrn.4032793

Edoardo Rainone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
31
Abstract Views
141
PlumX Metrics