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Coping with People's Inflation Perceptions during a Currency Changeover

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Author Info

  • 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. Eife, Thomas, 2006. "Currency Changeovers as Natural Experiments," Munich Dissertations in Economics 5839, University of Munich, Department of Economics.
  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. 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, 02.
  4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  5. Brachinger, Hans Wolfgang, 2006. "Euro or “Teuro”?: The Euro-induced Perceived Inflation in Germany," DQE Working Papers 5, Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland.
  6. Thomas A. Eife, 2006. "Price setting behaviour and price setting regulations at the euro changeover," Bank of Estonia Working Papers 2006-06, Bank of Estonia, revised 12 Oct 2006.
  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.
  8. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 0588, European Central Bank.
  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 112, National Bank of Belgium.
  10. Thomas A. Eife & Stephan Meier, 2007. "Costly Inflation Misperceptions," Working Papers 0455, University of Heidelberg, Department of Economics, revised Oct 2007.
  11. Bettina Isengard & Thorsten Schneider, 2006. "The euro and its perception in the German population," Discussion Papers 011, University of Flensburg, International Institute of Management.
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Citations

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Cited by:
  1. Michael Ehrmann, 2011. "Inflation Developments and Perceptions after the Euro Cash Changeover," German Economic Review, Verein für Socialpolitik, vol. 12(1), pages 33-58, 02.
  2. Lena Dräger & Jan-Oliver Menz & Ulrich Fritsche, 2014. "Perceived inflation under loss aversion," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 282-293, January.
  3. Thomas A. Eife & Stephan Meier, 2007. "Costly Inflation Misperceptions," Working Papers 0455, University of Heidelberg, Department of Economics, revised Oct 2007.
  4. Badarinza, Cristian & Gross, Marco, 2012. "Information flows and disagreement," Working Paper Series 1475, European Central Bank.
  5. Lena Vogel & Jan-Oliver Menz & Ulrich Fritsche, 2009. "Prospect Theory and Inflation Perceptions - An Empirical Assessment," Macroeconomics and Finance Series 200903, Hamburg University, Department Wirtschaft und Politik.

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