Shoe-Leather Costs in the Euro Area and the Foreign Demand for Euro Banknotes
by Alessandro Calzaa and Andrea Zaghinib
We estimate the shoe-leather costs of inflation in the euro area using monetary data adjusted for holdings of euro banknotes abroad. While we find evidence of marginally negative
shoe-leather costs for very low levels of the nominal interest rate, our estimates suggest that the shoe-leather costs are non-negligible even for relatively moderate levels of anticipated
inflation. We conclude that, despite the increased circulation of euro banknotes abroad, in the euro area the inflation tax is still predominantly borne by domestic agents, with transfers
of resources from abroad remaining small.
JEL Codes: E41, C22.
Full article (PDF, 16 pages, 368 kb)
a European Central Bank
b Banca d’Italia