Investigating the Factors Affecting the Demand for Banknotes in Iran Using Co-integration and Error Correction Approach

The goal of this study is to analyze the mechanism of influence of some macroeconomic variables including GDP, exchange rate, interest rate, general price level and number of sales terminals as an indicator of new financial technology on the demand for banknotes in Iran. The data used are seasonal time series from 1385 to 1397 which have been analyzed by vector error correction (VECM) and co-integration methods. The results show that the long- run relationship is positive between banknote demand and consumer price index and GDP; it is negative with exchange rate and number of sales terminals; and statistically insignificant with interest rates. But in the short run, the demand for banknotes depends on the volume of the banknotes and the exchange rate of the previous period and the effect of the season. Also, the effect of different shocks on the banknote volume was investigated using the impulse response function and the method of analysis of variance of the predicted error, and it was found that the response of the amount of circulating banknote to the shock in the variables of exchange rate and the number of sales terminals is more faster than other variables.