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Perceived and Measured Inflation after the Launch of the Euro: Explaining the Gap in Italy

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Author Info
Paolo Del Giovane () (Bank of Italy)
Roberto Sabbatini () (Bank of Italy)
Abstract

Following the euro cash changeover, residents in the area perceived a much sharper increase in prices than the moderate rise recorded in official statistics. The paper shows that in Italy this gap can be explained for the most part by the stronger influence that large, upward, and frequently observed price movements exert on consumers’ perceptions, combined with the actual behaviour of prices in the wake of the changeover, when many prices did in fact change, with larger increases for the more frequently purchased products and exceptional rises in certain items. The interplay between public perceptions and media coverage also had a significant role. Finally, the perceived loss of purchasing power, especially for the least-well-off households, can be traced to economic phenomena that do not bear directly on official inflation but which households find it hard to consider separately, such as increases in house prices and the evolution of income.

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Publisher Info
Article provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.

Volume (Year): 65 (2006)
Issue (Month): 2 (November)
Pages: 155-192
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Handle: RePEc:gde:journl:gde_v65_n2_p155-192

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Related research
Keywords: euro; inflation; perceptions;

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Giovanni Mastrobuoni, 2004. "The Effects of the Euro-Conversion on Prices and Price Perceptions," Working Papers 101, Princeton University, Department of Economics, Center for Economic Policy Studies.. [Downloadable!]
  2. Boeri, Tito & Brandolini, Andrea, 2005. "The Age of Discontent: Italian Households at the Beginning of the Decade," IZA Discussion Papers 1530, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Paolo Angelini & Francesco Lippi, 2006. "Did inflation really soar after the euro cash changeover? Indirect evidence from ATM withdrawals," Temi di discussione (Economic working papers) 581, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  5. Hans Wolfgang Brachinger, 2006. "Euro or “Teuro”?: The Euro-induced Perceived Inflation in Germany," DQE Working Papers 5, Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland. [Downloadable!]
  6. Michael Ehrmann, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 588, European Central Bank. [Downloadable!]
  7. Manfred Fluch & Helmut Stix, 2005. "Perceived Inflation in Austria — Extent, Explanations, Effects," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 22-47, November. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Columba, Francesco, 2007. "The Speed of Euro Adoption," MPRA Paper 5547, University Library of Munich, Germany. [Downloadable!]
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