The Euro Changeover and its Effects on Price Transparency and Inflation
AbstractDespite the expectations of economists that the euro changeover would have no effect on prices, we show that European consumers perceived the contrary. The data indicate that consumers based their perceptions about inflation on goods that are cheaper and more frequently purchased. We use this insight to develop and estimate a model of imperfect information that explains why these goods were subject to higher price growth after the changeover. The data indicate that some retailers, aware of the consumers' diffculties in adopting the new currency, used the changeover to increase profits by increasing prices. We also propose an explanation of why this effect was smaller in more concentrated retail markets.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 26.
Length: 37 pages
Date of creation: 2005
Date of revision: 2006
euro; currency changeover; imperfect information; search costs; price setting.;
Other versions of this item:
- 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.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-CBA-2006-09-30 (Central Banking)
- NEP-EEC-2006-09-30 (European Economics)
- NEP-FMK-2006-09-30 (Financial Markets)
- NEP-MAC-2006-09-30 (Macroeconomics)
- NEP-MON-2006-09-30 (Monetary Economics)
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