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Modelling the Demand for Euro Banknotes

Publication Year 
JEL Code 
C32 - Time-Series Models
E41 - Demand for Money
E50 - General
Liquidity management is a key mission of a central bank. In particular, the adequate provision of banknotes requires the understanding of what drives currency demand in a continuously changing environment. The challenge is even bigger in the case of the European monetary union where the euro continues to develop into a well-established currency outside borders. The focus is on modelling euro banknotes demand namely by considering its denominational breakdown. Such an analysis allows to unveil the heterogeneous role played by the several drivers while providing a more in depth modelling of currency demand. The econometric approach pursued allows to take on board the interconnections across denominations both in the long- and short-run dynamics.
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