“Demand for Currency and New Technology, the Adoption of Electronic Money: A Puzzle from Japanese Individual Household Data” by Migiwa Tanaka
The Hong Kong University of Science and Technology
In last few years, the electronic money industry in Japan has grown rapidly. Using individual household survey data, we investigate how the diffusion of electronic money, a new form of payment technology, influences the demand for currency. We estimate demand functions for currency conditional on the electronic money adoption status in an endogenous switching regression framework. Our estimates yield the following results. First, wealthier individuals in their 30s are more likely to adopt electronic money. Second, there are significant network externalities in electronic money adoption. Third, the adoption of electronic money does not decrease demand for currency by the household sector. The third results constitute an empirical puzzle of the effects of the adoption of electronic money on the demand for currency based on an inventory model of demand for money.