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JOURNAL OF APPLIED BUSINESS AND ECONOMICS

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


Author(s): Hans-Eggert Reimers, Friedrich Schneider, Franz Seitz

Citation: Hans-Eggert Reimers, Friedrich Schneider, Franz Seitz, (2021) "Payment Innovations, the Shadow Economy and Cash Demand of Households in Euro Area Countries," Journal of Applied Business and Economics, Vol. 23, Iss.3,  pp. 316-335

Article Type: Research paper

Publisher: North American Business Press

​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.