Cash-Management in Times of Covid-19

Fernando Alvarez, David Argente

Research output: Contribution to journalArticlepeer-review

Abstract

The incidence of COVID-19 has systematically decreased households' use of cash as means of payment as well as the average size and frequency of cash withdrawals. We argue that the structure of Baumol-Tobin type inventory theoretical models and their extensions can be used to separate the confounding factors, such as the desired level of consumption and the choice of the fraction of consumption paid in cash, from the cash management behavior, i.e. the size and frequency of cash withdrawals. Using this insight we argue that the observed cash management is consistent with COVID-19 increasing the fixed cost of withdrawing cash. We use detailed data on ATM cash disbursements in Argentina, Chile, and the US to estimate how much the pandemic has changed the transaction cost of using cash. This estimation shows that if the intensity of the virus doubles in a county, cash transaction cost increases by approximately 2%. The results from Argentina, Chile, and the US are remarkably similar and robust to several forms of measurement error and endogeneity.

Original languageEnglish (US)
JournalB.E. Journal of Macroeconomics
DOIs
StateAccepted/In press - 2021

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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