CCBS Handbooks

Abstract No 28 - Forecasting banknotes
by Mohamed Afzal Norat

A central bank’s liquidity forecast is important in ensuring that it supplies the banking system’s need for central bank money. Banknote (or currency in circulation) demand is the largest and for some central banks the most variable component of the liquidity forecast. Accurate forecasting of banknotes is essential in ensuring an accurate liquidity forecast and in turn
effective monetary policy implementation.

This Handbook discusses these issues and outlines a structural time series state space (STSSS) model which is now used by central banks including the Bank of England and ECB to forecast banknotes (currency in circulation).

 

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