The use of cash for purchasing consumption goods in the U.S. has
constantly declined since the end of the 80’s. Correspondingly, we
find that the celebrated result of a causal effect of money on GNP (Sims, 1972)
does not hold anymore for the U.S after 1988. These facts suggest the hypothesis that the primary role of money has changed from facilitating transactions towards serving as a unit of account.
To test this hypothesis and to understand its consequences, we develop and estimate a DSGE model with real resource costs of transactions, and compare it to a cashless economy. We find empirical support for our hypothesis, and explain that and how the loss in predictive power of money contributed to the well established decline in the volatilities of output and inflation.