ENBIS-11 in Coimbra

4 – 8 September 2011 Abstract submission: 1 January – 25 June 2011

Evaluation of the Effect of Debit Cards on Cash Demand by Propensity Score Regressions in a Principal Stratification Model

6 September 2011, 16:05 – 16:25


Submitted by
Andrea Mercatanti
Andrea Mercatanti, Luca Arciero
Economic and Financial Statistics Department, Italian Central Bank
Innovation in transaction technology has been argued to modify the cash holding behaviour of agents, as debit cardholders may either withdraw cash from ATMs and purchase items using POS devices at retailers. In this paper, we quantify the effect of the use of debit cards on the level of money inventories held by Italian households by means of a well established causal theory: the potential outcomes approach. To account for the relevant share of Italian debit cardholders not using this payment instrument, a model based on the concept of principal stratifications is proposed. We illustrate a set of assumptions under which the model can identify the effect for people that use debit cards. In particular we require that, conditionally on a set of observable covariates, there are no unobservable variables that are associated both with the level of money inventories and the holding of cards. An estimation method based on propensity score regressions is then proposed and its consistency is proved. Finally, the application results in significant and negative effects of debit card use on the cash level for different waves.

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