The impact of commercial sweeping on the demand for monetary assets during the Great Recession

This study investigates how accounting for commercial sweeping affects estimates of elasticities of substitution between monetary assets over the period 1991 to 2012 using a Fourier flexible form. On the basis of the Fourier model, we find that adjusting the monetary data for commercial sweeps leads to higher average estimates for many elasticities of substitution over the sample period. The average value of an elasticity capturing substitution between currency and demand deposits and other checkable deposits nearly doubled when the elasticity was estimated using data that was adjusted for commercial sweeps as compared with unadjusted data. We also find that the share of commercial sweeps relative to total demand deposits eventually ended up lower following each of the past two recessions than it was leading up to them.