Do households care about cash? Exploring the heterogeneous effects of India's demonetization

Detalhes bibliográficos
Autor(a) principal: Karmakar, Sudipto
Data de Publicação: 2019
Outros Autores: Narayanan, Abhinav
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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spelling 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
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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
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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)
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