Francesco Lippi

Median Voter Preferences, Central Bank Independence and Conservatism

This paper studies how the independence and theconservatism of a central bank relate to the structureand stability of the median voter preferences. This isdone by means of a model of endogenous delegationwhere an opportunistic policy maker chooses themonetary regime (independence and conservatism) tomaximise the welfare of the median voter. The resultsshow that a high degree of inflation aversion ofmonetary policy is not necessarily associated with ahigh degree of central bank independence. A high andstable degree of inflation aversion of society (i.e.of the median voter) may lead to establish a dependentcentral bank which is highly inflation averse. This suggests that the negativecorrelation between inflation and central bankindependence indices detected by several empiricalstudies may reflect a link between inflation and somedeep features of social preferences.

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

The introduction of the euro notes and coins in the first two 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 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.

Cash Burns: An Inventory Model with a Cash-Credit Choice

We present a dynamic cash-management model where agents choose whether to pay with cash or credit at every point in time. In the model credit usage depends on the current stock of cash, a novel result that matches recent micro evidence on household’s payment choices. The optimality of such decision rule is novel and cannot be obtained by models where cash-credit decisions are made at the “beginning�? of each period. We discuss how to use the model to account for cross country-evidence on the intensity of credit usage and for several statistics on the size and frequency of cash withdrawals. We use the model to assess the household’s welfare cost of phasing out cash.