Modelling the Aggregate Payment Decisions in the Economy
21 Pages Posted: 11 Jun 2007
Date Written: June 2007
The objective of this paper is to explain the use of cash, payment cards and checks in the economy. In so doing, we propose three models of payment decision and we test how well each of these models replicates the observed aggregate payments decisions. We show that the model based on cash holding performs better than the models based on transaction sizes. This result implies that introducing a third payment instrument crucially modifies the conclusions drawn from previous results given in the literature.
Keywords: Demand for money, Payment Instruments, Forecasting and Simulations
JEL Classification: E41, E17, G2
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