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Did Inflation Really Soar after the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals

19 Pages Posted: 27 Jul 2005  

Paolo Angelini

Bank of Italy

Francesco Lippi

Bank of Italy - Research Department; Stanford University - The Hoover Institution on War, Revolution and Peace; Centre for Economic Policy Research (CEPR)

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Date Written: March 2005

Abstract

The introduction of the euro notes and coins during the first months of 2002 was followed by a lively debate on the alleged inflationary effects of the new currency. In Italy, as in the rest of the euro area, survey-based measures signaled a much sharper rise in inflation than measured by the official price indices, whose quality was called into question. In this paper, we gather indirect evidence on the behavior of prices from the analysis of cash withdrawals from ATM and their determinants. Since these data do not rely on official inflation statistics, they provide an independent check for the latter. We present a simple theoretical model in which the relationship between aggregate ATM withdrawals and aggregate expenditure is not homogenous of degree one in the price level, a prediction which is strongly supported by the data. This feature allows us to test the hypothesis that, after the introduction of the euro notes and coins, consumer prices underwent an increase not recorded by official inflation statistics. We do not find evidence in support of this hypothesis.

Keywords: Euro changeover, inflation, currency

JEL Classification: E31, E41

Suggested Citation

Angelini, Paolo and Lippi, Francesco, Did Inflation Really Soar after the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals (March 2005). CEPR Discussion Paper No. 4950. Available at SSRN: https://ssrn.com/abstract=763764

Paolo Angelini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco Lippi (Contact Author)

Bank of Italy - Research Department ( email )

Via Nazionale 91
00184 Roma
Italy
+39 047 922580 (Phone)
+39 047 923723 (Fax)

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

434 Galvez Mall
Room 20 Tower
Stanford, CA 94305
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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