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Transitional price rises with the adoption of the euro: aggregate and disaggregate sector evidence

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  • Marco Ercolani

Abstract

This paper presents a time‐series regression analysis of price inflation at the time of the euro currency changeover in January 2002. Cross‐equation tests on 12 euro countries and three non‐euro EU countries are used to identify significant price changes around that time. For a small number of product and service categories, positive price changes immediately after the euro changeover suggest the possible existence of menu costs, sellers' rounding up of prices or buyers' temporary rational inattention. However, the lack of evidence for reduced inflation immediately prior to the euro changeover suggests menu costs are not important.

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  • Marco Ercolani, 2010. "Transitional price rises with the adoption of the euro: aggregate and disaggregate sector evidence," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 137-157.
    • Handle: RePEc:taf:jecprf:v:13:y:2010:i:2:p:137-157
    DOI: 10.1080/17487871003700747
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    1. Bart Hobijn & Federico Ravenna & Andrea Tambalotti, 2006. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 1103-1131.
    2. Eugenio Gaiotti & Francesco Lippi, 2008. "Pricing behaviour and the introduction of the euro: evidence from a panel of restaurants," Springer Books, in: Paolo Giovane & Roberto Sabbatini (ed.), The Euro, Inflation and Consumer’s Perceptions, chapter 3, pages 71-107, Springer.
    3. Wioletta Dziuda & Giovanni Mastrobuoni, 2009. "The Euro Changeover and Its Effects on Price Transparency and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 101-129, February.
    4. Lippi, Francesco & Angelini, Paolo, 2005. "Did Inflation Really Soar After the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals," CEPR Discussion Papers 4950, C.E.P.R. Discussion Papers.
    5. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    6. Kozicki, Sharon & Hoffman, Barak, 2004. "Rounding Error: A Distorting Influence on Index Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 319-338, June.
    7. Giancarlo Marini & Fabrizio Adriani & Pasquale Scaramozzino, 2003. "The Inflationary Consequences of a Currency Changeover: Evidence from the Michelin Red Guide," CEIS Research Paper 27, Tor Vergata University, CEIS.
    8. V. Bhaskar, 2002. "On Endogenously Staggered Prices," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 97-116.
    9. Carlos Coimbra & Daniel Santos & Rui Evangelista & Teresa Nascimento, 2002. "Analysis on the Impact of the Conversion of Escudos into Euros," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    10. Marco G. Ercolani & Jayasri Dutta, 2007. "The Impact of the Euro Changeover on Inflation: Evidence from the Harmonised Index of Consumer Prices," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 10, pages 233-270, Palgrave Macmillan.
    11. Elliot D. Williams, 2006. "The Effects of Rounding on the Consumer Price Index," Working Papers 397, U.S. Bureau of Labor Statistics.
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    Cited by:

    1. Bianca Steliana Pîra (Beşa), 2014. "Preparing The Euro Changeover – Romania'S Case," Romanian Economic Business Review, Romanian-American University, vol. 8(2), pages 392-409, December.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • L89 - Industrial Organization - - Industry Studies: Services - - - Other

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