The objective of this paper is to analyze the effect of transaction technology innovation on the demand for overnight (i.e. demand) deposits in Italy. The rapid diffusion of ATM and POS during the last decade may have helped to change money demand patterns and therefore standard econometric analysis that do not account for these developments may suffer from an omitted variable problem. Using data on 95 Italian provinces from 1991 to 1999, I find that transaction technology innovation has a positive effect on overnight deposits. Accounting for this innovation in the regressions reduces the estimated income elasticity. Panel analysis which exploits the cross-section heterogeneity seems to give interesting insights.
Published in 2002 in: IFC Bulletin, 12, pp. 45-59
