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The Euro-changeoverand Euro-inflation: Evidence from Eurostat's HICP

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Author Info
Marco G. Ercolani and Jayasri Dutta

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Abstract

Though anecdotal evidence suggests that retail price inflation increased temporarily in January 2002 when Euro notes and coins were introduced, the evidence from official statistics largely refutes this. We test for the presence of a sudden temporary increase in inflation for Euro-changeover countries. We use the countries that did not join the Euro: Denmark, Sweden and the UK; as a control group. Though the results are sensitive to the estimation method, we do uncover weak evidence of a minor increase in aggregate inflation in January 2002 for the countries that did join the Euro. Similar tests for the Restaurant sector find a strong Euro-changeover effect on temporary inflation. Summary tests for 129 other price sub-categories are also discussed.

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Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 06-03.

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Length: 53 pages
Date of creation: Feb 2006
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Handle: RePEc:bir:birmec:06-03

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Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D40 - Microeconomics - - Market Structure and Pricing - - - 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
L89 - Industrial Organization - - Industry Studies: Services - - - Other

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  3. Fabrizio Adriani & Giancarlo Marini & Pasquale Scaramozzino, 2004. "The Inflationary Consequences Of A Currency Changeover: Evidence From The Michelin Red Guide," Royal Economic Society Annual Conference 2004 45, Royal Economic Society. [Downloadable!]
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  4. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238. [Downloadable!] (restricted)
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  5. Bhaskar, V, 2002. "On Endogenously Staggered Prices," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 97-116, January.
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  6. Anderton, Robert & Richard E Baldwin & Daria Taglioni, 2003. "The Impact of Monetary Union on Trade Prices," Royal Economic Society Annual Conference 2003 5, Royal Economic Society. [Downloadable!]
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  7. Magnus Forsells & Geoff Kenny, 2002. "The rationality of consumers' inflation expectations: survey-based evidence for the Euro area," Working Paper Series 163, European Central Bank. [Downloadable!]
  8. 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. [Downloadable!]
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  9. Andrew Levin & Chien-Fu Lin, 1992. "Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties," University of California at San Diego, Economics Working Paper Series 92-23, Department of Economics, UC San Diego. [Downloadable!]
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  10. Gaiotti, Eugenio & Lippi, Francesco, 2005. "Pricing Behaviour and the Introduction of the Euro: Evidence from a Panel of Restaurants," CEPR Discussion Papers 4893, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Joseph Beaulieu, J. & Miron, Jeffrey A., 1993. "Seasonal unit roots in aggregate U.S. data," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 305-328. [Downloadable!] (restricted)
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  12. 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. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
  2. 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. [Downloadable!]
    Other versions:
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