Do households care about cash? Exploring the heterogeneous effects of India's demonetization
Autor(a) principal: | |
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Data de Publicação: | 2019 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.5/17373 |
Resumo: | The recent demonetization exercise in India is a unique monetary experiment that made 86 percent of the total currency in circulation invalid. In a country where currency in circulation constitutes 12 percent of GDP, the policy turned out to be a purely exogenous macroeconomic shock that affected all agents of the economy. This paper documents the impact of this macroeconomic shock on one such systematically important agent of the economy: the household. By construction, the policy helped households with bank accounts in disposing of the demonetized cash. We use a new household-level data set to tease out the effects of this policy on households with no bank accounts relative to households with bank accounts. Our results show that the impact of demonetization on household income and expenditure has been transient with the major impact being seen in December-2016. We find that households with no bank accounts experienced a significant decrease in both income and expenditure in December-2016. There is significant heterogeneity in the impact across households in different asset classes. We also show evidence of recovery of household finances whereby households were able to smooth out consumption during the post-demonetization period. However, this recovery phase is associated with an increase in household borrowing from different sources, primarily for the purpose of consumption. In particular, informal borrowing (money lenders, shops) increased substantially during this period. Thus, the policy although transient in nature, contributed to the unintended consequence of increased leverage for households. |
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Do households care about cash? Exploring the heterogeneous effects of India's demonetizationDemonetizationHousehold financeLeverageThe recent demonetization exercise in India is a unique monetary experiment that made 86 percent of the total currency in circulation invalid. In a country where currency in circulation constitutes 12 percent of GDP, the policy turned out to be a purely exogenous macroeconomic shock that affected all agents of the economy. This paper documents the impact of this macroeconomic shock on one such systematically important agent of the economy: the household. By construction, the policy helped households with bank accounts in disposing of the demonetized cash. We use a new household-level data set to tease out the effects of this policy on households with no bank accounts relative to households with bank accounts. Our results show that the impact of demonetization on household income and expenditure has been transient with the major impact being seen in December-2016. We find that households with no bank accounts experienced a significant decrease in both income and expenditure in December-2016. There is significant heterogeneity in the impact across households in different asset classes. We also show evidence of recovery of household finances whereby households were able to smooth out consumption during the post-demonetization period. However, this recovery phase is associated with an increase in household borrowing from different sources, primarily for the purpose of consumption. In particular, informal borrowing (money lenders, shops) increased substantially during this period. Thus, the policy although transient in nature, contributed to the unintended consequence of increased leverage for households.ISEG - REM - Research in Economics and MathematicsRepositório da Universidade de LisboaKarmakar, SudiptoNarayanan, Abhinav2019-02-19T14:31:25Z2019-022019-02-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.5/17373engKarmakar, Sudipto e Maria João Santos (1994). "Do households care about cash? Exploring the heterogeneous effects of India's demonetization". Instituto Superior de Economia e Gestão – REM Working paper nº 073 - 20192184-108Xinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-03-06T14:47:02Zoai:www.repository.utl.pt:10400.5/17373Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T17:02:35.684165Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
title |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
spellingShingle |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization Karmakar, Sudipto Demonetization Household finance Leverage |
title_short |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
title_full |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
title_fullStr |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
title_full_unstemmed |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
title_sort |
Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
author |
Karmakar, Sudipto |
author_facet |
Karmakar, Sudipto Narayanan, Abhinav |
author_role |
author |
author2 |
Narayanan, Abhinav |
author2_role |
author |
dc.contributor.none.fl_str_mv |
Repositório da Universidade de Lisboa |
dc.contributor.author.fl_str_mv |
Karmakar, Sudipto Narayanan, Abhinav |
dc.subject.por.fl_str_mv |
Demonetization Household finance Leverage |
topic |
Demonetization Household finance Leverage |
description |
The recent demonetization exercise in India is a unique monetary experiment that made 86 percent of the total currency in circulation invalid. In a country where currency in circulation constitutes 12 percent of GDP, the policy turned out to be a purely exogenous macroeconomic shock that affected all agents of the economy. This paper documents the impact of this macroeconomic shock on one such systematically important agent of the economy: the household. By construction, the policy helped households with bank accounts in disposing of the demonetized cash. We use a new household-level data set to tease out the effects of this policy on households with no bank accounts relative to households with bank accounts. Our results show that the impact of demonetization on household income and expenditure has been transient with the major impact being seen in December-2016. We find that households with no bank accounts experienced a significant decrease in both income and expenditure in December-2016. There is significant heterogeneity in the impact across households in different asset classes. We also show evidence of recovery of household finances whereby households were able to smooth out consumption during the post-demonetization period. However, this recovery phase is associated with an increase in household borrowing from different sources, primarily for the purpose of consumption. In particular, informal borrowing (money lenders, shops) increased substantially during this period. Thus, the policy although transient in nature, contributed to the unintended consequence of increased leverage for households. |
publishDate |
2019 |
dc.date.none.fl_str_mv |
2019-02-19T14:31:25Z 2019-02 2019-02-01T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.5/17373 |
url |
http://hdl.handle.net/10400.5/17373 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Karmakar, Sudipto e Maria João Santos (1994). "Do households care about cash? Exploring the heterogeneous effects of India's demonetization". Instituto Superior de Economia e Gestão – REM Working paper nº 073 - 2019 2184-108X |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
ISEG - REM - Research in Economics and Mathematics |
publisher.none.fl_str_mv |
ISEG - REM - Research in Economics and Mathematics |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799131115358781440 |