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Transaction Technology Innovation and Demand for Overnight Deposits in Italy

  • Francesco Columba

    (Bank of Italy)

The rapid diffusion of ATM and POS during the last decade may have changed money demand patterns; therefore, standard econometric analysis of money demand that do not account for these developments may suffer from a potentially serious omitted variable problem. This paper analyzes the effect of transaction technology innovation on overnight (i.e. demand) deposits. Using panel data for Italy we have two results. First, transaction technology innovation has a positive effect on demand deposits. Second, accounting for this innovation in the regressions significantly reduces the income elasticity of money demand typically detected in the existing empirical estimates.

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File URL: http://128.118.178.162/eps/mac/papers/0404/0404011.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0404011.

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Length: 34 pages
Date of creation: 14 Apr 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0404011
Note: Type of Document - pdf; pages: 34
Contact details of provider: Web page: http://128.118.178.162

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  1. Gerali, Andrea & Lippi, Francesco, 2001. "On the 'Conquest' of Inflation," CEPR Discussion Papers 3101, C.E.P.R. Discussion Papers.
  2. Angelini, P. & Hendry, D.F. & Rinaldi, R., 1993. "An Econometric Analysis of Money Demand in Italy," Papers 219, Banca Italia - Servizio di Studi.
  3. Domenica J. Marchetti, 1999. "Markup and the Business Cycle: Evidence from Italian Manufacturing Branches," Temi di discussione (Economic working papers) 362, Bank of Italy, Economic Research and International Relations Area.
  4. Bonaccorsi di Patti, Emilia & Gobbi, Giorgio, 2001. "The changing structure of local credit markets: Are small businesses special?," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2209-2237, December.
  5. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004. "Money Demand in theEuroArea: Do National Differences Matter?," Macroeconomics 0404019, EconWPA, revised 24 Apr 2004.
  6. Duca, John V, 2000. "Financial Technology Shocks and the Case of the Missing M2," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 820-39, November.
  7. Orazio Attanasio & Luigi Guiso & Tullio Jappelli, 1998. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Households' Data," CSEF Working Papers 03, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  8. Casey B. Mulligan & Xavier Sala-i-Martin, 2000. "Extensive Margins and the Demand for Money at Low Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 961-991, October.
  9. Sala-i-Martin, X. & Mulligan, C.B., 1992. "U.S. Money Demand: Surprising Cross-Sectional Estimates," Papers 671, Yale - Economic Growth Center.
  10. Hester Donald D. & Calcagnini Giorgio & De Bonis Riccardo, 2001. "Competition Through Innovation: ATMs in Italian Banks," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 359-382.
  11. Marchetti, D.J., 1999. "Markup and the Business Cycle: Evidence from Italian Manufacturing Branches," Papers 362, Banca Italia - Servizio di Studi.
  12. 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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  14. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  15. Mulligan, Casey B & Sala-i-Martin, Xavier, 1996. "Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy," CEPR Discussion Papers 1358, C.E.P.R. Discussion Papers.
  16. Dario Focarelli, 2002. "Bootstrap bias-correction procedure in estimating long-run relationships from dynamic panels, with an application to money demand in the euro area," Temi di discussione (Economic working papers) 440, Bank of Italy, Economic Research and International Relations Area.
  17. repec:rie:review:v:6:y:2001:i:3:n:2 is not listed on IDEAS
  18. Alessandro Calza & Alexander Jung & Livio Stracca, 2000. "An econometric analysis of the main components of M3 in the Euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(4), pages 680-701, December.
  19. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
  20. Paroush, Jacob & Ruthenberg, David, 1986. "Automated teller machines and the share of demand deposits in the money supply: The Israeli Experience," European Economic Review, Elsevier, vol. 30(6), pages 1207-1215, December.
  21. Piero Cipollone, 2001. "La convergenza dei salari manifatturieri in Europa," Temi di discussione (Economic working papers) 398, Bank of Italy, Economic Research and International Relations Area.
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