Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197873
Authors: 
Dunbar, Geoffrey
Jones, Casey
Year of Publication: 
2018
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2018-20
Publisher: 
Bank of Canada, Ottawa
Abstract: 
A novel dataset from the Bank of Canada is used to estimate the deposit functions for banknotes in Canada for three denominations: $1,000, $100 and $50. The broad flavour of the empirical findings is that denominations are different monies, and the structural estimates identify the underlying sources of the non-neutrality. There is evidence of large and significant deposit costs for the highest-value denomination, the $1,000 banknote, but insignificant costs for the $100 and $50 denominations. The results imply that the interest rate elasticity of deposit is positive for the $1,000 but negative for the $100 and the $50. Third, 5 percent of the $1,000, 30 percent of the $100 and 22 percent of the $50 banknotes ever issued by the Bank of Canada do not circulate through financial institutions (in Canada). Finally, we find evidence that the Lehman Brothers crisis increased the deposit probability by a factor of 2-3 for the $1,000 banknote for a majority of the population in Canada.
Subjects: 
Bank notes
Econometric and statistical methods
JEL: 
E41
C31
C36
Document Type: 
Working Paper

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