NBER

Abhinav Narayanan

E-Mail: abhinavnarayanan@rbi.org.in
Institutional Affiliation: Reserve Bank of India

NBER Working Papers and Publications

December 2018Cash and the Economy: Evidence from India's Demonetization
with Gabriel Chodorow-Reich, Gita Gopinath, Prachi Mishra: w25370
We analyze a unique episode in the history of monetary economics, the 2016 Indian "demonetization." This policy made 86% of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months. We present a model of demonetization where agents hold cash both to satisfy a cash-in-advance constraint and for tax evasion purposes. We test the predictions of the model in the cross-section of Indian districts using several novel data sets including: a data set containing the geographic distribution of demonetized and new notes for causal inference; nightlights data and employment surveys to measure economic activity including in the informal sector; debit/credit cards and e-wallet transactions data; and banking data on deposit and credit growth. Distric...

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