Theory predicts that dismissing the 1 and 2 euro cent coins from the denominational range of the euro leads to more payment efficiency. To examine whether this theory holds true in practice, we collected data for the Netherlands before and after September 1 2004, which marks the day that retail stores were allowed to round all amounts at 5 euro cents. The data consist of wallet contents for three cross sections of individuals. We propose a multivariate Poisson- log Normal model to analyze these data. We find that rounding leads to less 1 and 2 cent coins in wallets, but that still other coins are over or underrepresented, thereby suggesting that the euro range does not yet lead to fully efficient payment behavior.

Additional Metadata
Keywords cash payment, euro denomination, maximum simulated likelihood, multivariate poisson-log normal
JEL Simulation Methods; Monte Carlo Methods; Bootstrap Methods (jel C15), Discrete Regression and Qualitative Choice Models; Discrete Regressors (jel C35), Money Supply; Credit; Money Multipliers (jel E51)
Persistent URL hdl.handle.net/1765/8013
Series Econometric Institute Research Papers
Journal Report / Econometric Institute, Erasmus University Rotterdam
Citation
Bijwaard, G.E, & Franses, Ph.H.B.F. (2006). Does rounding matter for payment efficiency? (No. EI 2006-43). Report / Econometric Institute, Erasmus University Rotterdam. Retrieved from http://hdl.handle.net/1765/8013