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The effects of negative interest rates on cash usage: Evidence for EU countries

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Abstract Changes in interest rates below the zero lower bound could have potential effects on the payments market by making cash more attractive for consumers as a medium of payment… Click to show full abstract

Abstract Changes in interest rates below the zero lower bound could have potential effects on the payments market by making cash more attractive for consumers as a medium of payment and wealth storage. This paper studies how cash usage has been affected by the recent introduction of negative interest rates in European countries. Using a difference-in-differences methodology over the period 2006 - 2018, results show an increase in cash usage in negative interest-rate environments. We also find that the increase in cash usage was less pronounced in countries with superior monitoring capacity of banks (i.e. high levels of financial intermediation).

Keywords: negative interest; cash usage; cash; effects negative; interest rates

Journal Title: Economics Letters
Year Published: 2020

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