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Coping with People's Inflation Perceptions during a Currency Changeover

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  • Thomas A. Eife

    ()
    (University of Heidelberg, Department of Economics)

  • W. Timothy Coombs

    ()
    (University of Illinois)

Abstract

The discrepancy between popular impressions of how the 2002 changeover to the euro affected prices and its actual impact is perhaps the most surprising consequence of the single currency’s introduction. Following the changeover, perceived inflation rose significantly and returned to its prechangeover level only several months later. This paper argues that people’s inflation misperceptions could have been avoided. Using principles of crisis communication, we identify the mistakes made and present policy recommendations for future changeovers

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp458.pdf
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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0458.

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Length: 24 pages
Date of creation: Nov 2007
Date of revision: Nov 2007
Handle: RePEc:awi:wpaper:0458

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Keywords: euro changeover; perceived inflation; communication; perceptual crisis;

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References

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  1. Thomas A. Eife & Stephan Meier, 2007. "Costly Inflation Misperceptions," Working Papers, University of Heidelberg, Department of Economics 0455, University of Heidelberg, Department of Economics, revised Oct 2007.
  2. Wunder, Christoph & Schwarze, Johannes & Krug, Gerhard & Herzog, Bodo, 2006. "Welfare Effects of the Euro Cash Changeover," IZA Discussion Papers 2508, Institute for the Study of Labor (IZA).
  3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  4. Bettina Isengard & Thorsten Schneider, 2006. "The euro and its perception in the German population," Discussion Papers, University of Flensburg, International Institute of Management 011, University of Flensburg, International Institute of Management.
  5. Thomas A. Eife, 2006. "Price setting behaviour and price setting regulations at the euro changeover," Bank of Estonia Working Papers, Bank of Estonia 2006-06, Bank of Estonia, revised 12 Oct 2006.
  6. Wioletta Dziuda & Giovanni Mastrobuoni, 2009. "The Euro Changeover and Its Effects on Price Transparency and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(1), pages 101-129, 02.
  7. Eife, Thomas, 2006. "Currency Changeovers as Natural Experiments," Munich Dissertations in Economics, University of Munich, Department of Economics 5839, University of Munich, Department of Economics.
  8. Brachinger, Hans Wolfgang, 2006. "Euro or “Teuro”?: The Euro-induced Perceived Inflation in Germany," DQE Working Papers, Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland 5, Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland.
  9. Luc Aucremanne & Marianne Collin & Thomas Stragier, 2007. "Assessing the Gap between Observed and Perceived Inflation in the Euro Area : Is the Credibility of the HICP at Stake ?," Working Paper Research, National Bank of Belgium 112, National Bank of Belgium.
  10. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series, European Central Bank 0588, European Central Bank.
  11. 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.
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Cited by:
  1. Lena Dräger & Jan-Oliver Menz & Ulrich Fritsche, 2014. "Perceived inflation under loss aversion," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 46(3), pages 282-293, January.
  2. Thomas A. Eife & Stephan Meier, 2007. "Costly Inflation Misperceptions," Working Papers, University of Heidelberg, Department of Economics 0455, University of Heidelberg, Department of Economics, revised Oct 2007.
  3. Badarinza, Cristian & Gross, Marco, 2012. "Information flows and disagreement," Working Paper Series, European Central Bank 1475, European Central Bank.
  4. Lena Vogel & Jan-Oliver Menz & Ulrich Fritsche, 2009. "Prospect Theory and Inflation Perceptions - An Empirical Assessment," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 200903, Hamburg University, Department Wirtschaft und Politik.
  5. Michael Ehrmann, 2011. "Inflation Developments and Perceptions after the Euro Cash Changeover," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 12(1), pages 33-58, 02.

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