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Retail payments and the real economy

  • Hasan, Iftekhar
  • De Renzis, Tania
  • Schmiedel, Heiko

This paper examines the fundamental relationship between retail payments and the real economy. Using data from across 27 European markets over the period 1995-2009, the results confirm that migration to efficient electronic retail payments stimulates the overall economy, consumption and trade. Among different payment instruments, this relationship is strongest for card payments, followed by credit transfers. Cheque payments are found to have a relatively low macroeconomic impact. Retail payment transaction technology itself is also associated positively to real economic aggregates. We also show that initiatives to integrate and harmonise retail payment markets foster trade and consumption and thereby have a beneficial effect for whole economy. Additionally, the findings reveal that the impact of retail payments on the real economy is more pronounced in euro area countries. Our findings are robust to different regression specifications. The study supports the adoption of policies promoting a swift migration to efficient and harmonised electronic payment instruments. JEL Classification: G20, G21

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Paper provided by European Central Bank in its series Working Paper Series with number 1572.

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Date of creation: Aug 2013
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Handle: RePEc:ecb:ecbwps:20131572
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  1. Columba, Francesco, 2009. "Narrow money and transaction technology: new disaggregated evidence," MPRA Paper 12689, University Library of Munich, Germany.
  2. Mathias Drehmann & Charles Goodhart & Malte Krueger, 2002. "The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies?," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 193-228, 04.
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  4. Maurice Bun & Frank Windmeijer, 2007. "The weak instrument problem of the system GMM estimator in dynamic panel data models," CeMMAP working papers CWP08/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. David Humphrey & Moshe Kim & Bent Vale, 1998. "Realizing the gains from electronic payments: costs, pricing, and payment choice," Proceedings 586, Federal Reserve Bank of Chicago.
  6. Hasan, Iftekhar & Koetter , Michael & Wedow, Michael, 2009. "Regional growth and finance in Europe: Is there a quality effect of bank efficiency?," Research Discussion Papers 13/2009, Bank of Finland.
  7. Inklaar, Robert & Koetter, Michael, 2008. "Financial dependence and industry growth in Europe: Better banks and higher productivity," GGDC Research Memorandum GD-100, .
  8. Attanasio, Orazio & Guiso, Luigi & Jappelli, Tullio, 1998. "The Demand for Money, Financial Innovation and the Welfare Cost of Inflation: An Analysis with Households' Data," CEPR Discussion Papers 1927, C.E.P.R. Discussion Papers.
  9. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  10. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
  11. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
  12. repec:fth:wobaco:1083 is not listed on IDEAS
  13. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
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