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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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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 13 (2010)
Issue (Month): 2 ()
Pages: 137-157

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Handle: RePEc:taf:jpolrf:v:13:y:2010:i:2:p:137-157

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Keywords: euro changeover; inflation; menu costs; price rounding; rational inattention;

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  1. Bart Hobijn & Federico Ravenna & Andrea Tambalotti, 2004. "Menu costs at work: restaurant prices and the introduction of the euro," Staff Reports 195, Federal Reserve Bank of New York.
  2. Elliot D. Williams, 2006. "The Effects of Rounding on the Consumer Price Index," Working Papers 397, U.S. Bureau of Labor Statistics.
  3. 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.
  4. Bhaskar, V, 2002. "On Endogenously Staggered Prices," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 97-116, January.
  5. Eugenio Gaiotti & Francesco Lippi, 2005. "Pricing behavior and the introduction of the euro: evidence from a panel of restaurants," Macroeconomics 0501029, EconWPA, revised 15 Feb 2005.
  6. Angelini, Paolo & Lippi, Francesco, 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.
  7. C.K. Folkertsma, 2001. "The Euro and Psychological Prices: Simulations of the Worst-Case Scenario," WO Research Memoranda (discontinued) 659, Netherlands Central Bank, Research Department.
  8. 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, Banco de Portugal, Economics and Research Department.
  9. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  10. C.K. Folkertsma & C. van Renselaar & A.C.J. Stokman, 2002. "Smooth Euro Changeover, Higher Prices? Results of a Survey Among Dutch Retailers," WO Research Memoranda (discontinued) 682, Netherlands Central Bank, Research Department.
  11. Giovanni Mastrobuoni & Wioletta Dziuda, 2005. "The Euro Changeover and its Effects on Price Transparency and Inflation," Carlo Alberto Notebooks 26, Collegio Carlo Alberto, revised 2006.
  12. 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 319-38, June.
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