Consumer payment choice and the heterogeneous impact of India’s demonetization

Consumer payment choice is based on heterogeneous preferences, availability, usage costs, and effective taxes. We examine the consequences of this consumption distribution, aggregate output, welfare shadow economy. analyze India’s sudden demonetization 86% cash in circulation with new notes gradually being replaced over next several months. The cost liquidity shock was equivalent to 1% owing slow remonetization process. Even though all consumers experienced a decline welfare, its extent varied depending degree dependence ability switch non-cash payments. middle deciles were disproportionately affected.