Publicação
Do households care about cash? Exploring the heterogeneous effects of India's demonetization
| 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. |
|---|---|
| Autores principais: | Karmakar, Sudipto |
| Outros Autores: | Narayanan, Abhinav |
| Assunto: | Demonetization Household finance Leverage |
| Ano: | 2019 |
| País: | Portugal |
| Tipo de documento: | working paper |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | Universidade de Lisboa |
| Idioma: | inglês |
| Origem: | Repositório da Universidade de Lisboa |
| _version_ | 1868978328002625536 |
|---|---|
| author | Karmakar, Sudipto |
| author2 | Narayanan, Abhinav |
| author2_role | author |
| author_facet | Karmakar, Sudipto Narayanan, Abhinav |
| author_role | author |
| contributor_name_str_mv | Repositório Científico de Acesso Aberto da ULisboa |
| country_str | PT |
| creators_json_txt | [{\"Person.name\":\"Karmakar, Sudipto\"},{\"Person.name\":\"Narayanan, Abhinav\"}] |
| datacite.contributors.contributor.contributorName.fl_str_mv | Repositório Científico de Acesso Aberto da ULisboa |
| datacite.creators.creator.creatorName.fl_str_mv | Karmakar, Sudipto Narayanan, Abhinav |
| datacite.date.Accepted.fl_str_mv | 2019-02-01T00:00:00Z |
| datacite.date.available.fl_str_mv | 2019-02-19T14:31:25Z |
| datacite.date.embargoed.fl_str_mv | 2019-02-19T14:31:25Z |
| datacite.rights.fl_str_mv | http://purl.org/coar/access_right/c_abf2 |
| datacite.subjects.subject.fl_str_mv | Demonetization Household finance Leverage |
| datacite.titles.title.fl_str_mv | Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
| dc.contributor.none.fl_str_mv | Repositório Científico de Acesso Aberto da ULisboa |
| dc.creator.none.fl_str_mv | Karmakar, Sudipto Narayanan, Abhinav |
| dc.date.Accepted.fl_str_mv | 2019-02-01T00:00:00Z |
| dc.date.available.fl_str_mv | 2019-02-19T14:31:25Z |
| dc.date.embargoed.fl_str_mv | 2019-02-19T14:31:25Z |
| dc.format.none.fl_str_mv | application/pdf |
| dc.identifier.none.fl_str_mv | http://hdl.handle.net/10400.5/17373 |
| dc.language.none.fl_str_mv | eng |
| dc.publisher.none.fl_str_mv | ISEG - REM - Research in Economics and Mathematics |
| dc.rights.none.fl_str_mv | http://purl.org/coar/access_right/c_abf2 |
| dc.subject.none.fl_str_mv | Demonetization Household finance Leverage |
| dc.title.fl_str_mv | Do households care about cash? Exploring the heterogeneous effects of India's demonetization |
| dc.type.none.fl_str_mv | http://purl.org/coar/resource_type/c_8042 |
| 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. |
| dirty | 0 |
| eu_rights_str_mv | openAccess |
| format | workingPaper |
| fulltext.url.fl_str_mv | https://repositorio.ulisboa.pt/bitstreams/a546bd0b-760b-48aa-a95f-1d3e73152cca/download |
| id | ul_7bba84d61ba526920ee6fd2bc1fe196a |
| identifier.url.fl_str_mv | http://hdl.handle.net/10400.5/17373 |
| inst_facet_str | urn:organizationAcronym:ul{{{_:::_}}}Universidade de Lisboa |
| instacron_str | ul |
| institution | Universidade de Lisboa |
| instname_str | Universidade de Lisboa |
| language | eng |
| network_acronym_str | ul |
| network_name_str | Repositório da Universidade de Lisboa |
| oai_identifier_str | oai:repositorio.ulisboa.pt:10400.5/17373 |
| organization_str_mv | urn:organizationAcronym:ul |
| person_str_mv | Karmakar, Sudipto Narayanan, Abhinav |
| publishDate | 2019 |
| publisher.none.fl_str_mv | ISEG - REM - Research in Economics and Mathematics |
| repo_facet_str | urn:repositoryAcronym:ul{{{_:::_}}}Repositório da Universidade de Lisboa |
| reponame_str | Repositório da Universidade de Lisboa |
| repository_id_str | urn:repositoryAcronym:ul |
| service_str_mv | urn:repositoryAcronym:ul |
| spelling | engISEG - REM - Research in Economics and Mathematicspt_PTThe 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.application/pdfpt_PTDo households care about cash? Exploring the heterogeneous effects of India's demonetizationKarmakar, SudiptoNarayanan, AbhinavHostingInstitutionOrganizationalRepositório Científico de Acesso Aberto da ULisboae-mailmailto:repositorio@reitoria.ulisboa.ptrepositorio@reitoria.ulisboa.ptISSNIsPartOf2184-108X2019-02-19T14:31:25Z2019-022019-02-01T00:00:00ZHandlehttp://hdl.handle.net/10400.5/17373http://purl.org/coar/access_right/c_abf2open accessDemonetizationHousehold financeLeverage1226748 bytesother research producthttp://purl.org/coar/resource_type/c_8042working paperhttp://purl.org/coar/access_right/c_abf2application/pdffulltexthttps://repositorio.ulisboa.pt/bitstreams/a546bd0b-760b-48aa-a95f-1d3e73152cca/download |
| spellingShingle | Do households care about cash? Exploring the heterogeneous effects of India's demonetization Karmakar, Sudipto Demonetization Household finance Leverage |
| status | SINGLETON |
| subject.fl_str_mv | Demonetization Household finance Leverage |
| title | 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_short | 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 |
| topic | Demonetization Household finance Leverage |
| topic_facet | Demonetization Household finance Leverage |
| url | http://hdl.handle.net/10400.5/17373 |
| visible | 1 |