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The Impact of the Euro Changeover on Inflation: Evidence from the Harmonised Index of Consumer Prices

In: The Travails of the Eurozone

Author

Listed:
  • Marco G. Ercolani
  • Jayasri Dutta

Abstract

Although anecdotal evidence has emerged to suggest that the prices of some goods did rise substantially at the time euro notes and coins were introduced, there have been few studies that have attempted to test this formally. Here we present formal statistical tests for the occurrence of a sudden increase in the aggregate price level for the 12 countries that undertook the changeover to euro notes and coins on 1 January 2002. Any sudden increase in the price level can also be detected as a temporary but substantial one-period rise in the rate of inflation. We use the countries that did not participate in the euro-changeover — Denmark, Sweden and the UK — as a control group for the formal statistical tests. We find that although the results are sensitive to the estimation method and to how the data are treated, there is weak evidence of a slight temporary increase in aggregate inflation (EuroStat code cp00) in January 2002 for the countries that did join the euro compared to those that did not. The data we use are from the New Cronos HICP (2005) monthly Harmonised Index of Consumer Prices (HICP) as supplied by EuroStat and cover the period 1995 to 2005.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:palchp:978-0-230-80147-9_10
    DOI: 10.1057/9780230801479_10
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    Cited by:

    1. 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.
    2. 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.
    3. Michael Ehrmann, 2011. "Inflation Developments and Perceptions after the Euro Cash Changeover," German Economic Review, Verein für Socialpolitik, vol. 12(1), pages 33-58, February.

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