Abstract:
Currency in circulation (CIC) is the amount of cash held by the public and the banking
sector. The importance of forecasting CIC stems from central banks’ remit to manage
the operational target in order to achieve price stability through the management of the
banking sector’s liquidity. Given the autonomous nature of CIC, daily movements can
greatly impact the liquidity of the banking system that is beyond the control of the central
bank and therefore, requires strenuous effort to produce short-term forecasts. The main
aim of this paper is to produce a short-term forecasting model CIC in the Maldives which
can be used to assess the short-term impact of Rufiyaa liquidity. Various models have been
used in the literature to forecast CIC, ranging from structural models to models based on
transactional and portfolio demand for cash. However, autoregressive integrated moving
average (ARIMA) models are often used by central banks for its relative accuracy in
shortterm forecasting.
JEL classification: E41, E42, E58, E47, C22
Keywords: Currency in circulation, ARIMA, Time series forecasting, Maldives
