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Did Inflation Really Soar After the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals

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  • Angelini, Paolo
  • Lippi, Francesco

Abstract

The introduction of the euro notes and coins during the first months of 2002 was followed by a lively debate on the alleged inflationary effects of the new currency. In Italy, as in the rest of the euro area, survey-based measures signaled a much sharper rise in inflation than measured by the official price indices, whose quality was called into question. In this paper we gather indirect evidence on the behaviour of prices from the analysis of cash withdrawals from ATM and their determinants. Since these data do not rely on official inflation statistics, they provide an independent check for the latter. We present a simple theoretical model in which the relationship between aggregate ATM withdrawals and aggregate expenditure is not homogenous of degree one in the price level, a prediction which is strongly supported by the data. This feature allows us to test the hypothesis that, after the introduction of the euro notes and coins, consumer prices underwent an increase not recorded by official inflation statistics. We do not find evidence in support of this hypothesis.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4950.

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Date of creation: Mar 2005
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Handle: RePEc:cpr:ceprdp:4950

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Keywords: currency; euro changeover; inflation;

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References

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  1. Bart Hobijn & Federico Ravenna & Andrea Tambalotti, 2006. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," The Quarterly Journal of Economics, MIT Press, vol. 121(3), pages 1103-1131, 08.
  2. 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.
  3. Giovanni Mastrobuoni, 2004. "The Effects of the Euro-Conversion on Prices and Price Perceptions," Working Papers 101, Princeton University, Department of Economics, Center for Economic Policy Studies..
  4. Giovanni Mastrobuoni & Wioletta Dziuda, 2005. "The Euro Changeover and Its Effects on Price Transparency, and Inflation. Mission Euro, Mission Accomplished!," International Finance 0503003, EconWPA, revised 24 May 2005.
  5. Eugenio Gaiotti & Francesco Lippi, 2005. "Pricing behavior and the introduction of the euro: evidence from a panel of restaurants," Macroeconomics 0501029, EconWPA, revised 15 Feb 2005.
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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 & 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, 02.
  3. Columba, Francesco, 2008. "The speed of euro adoption," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 249-259, March.
  4. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 0588, European Central Bank.
  5. Paolo Del Giovane & Roberto Sabbatini, 2006. "Perceived and Measured Inflation after the Launch of the Euro: Explaining the Gap in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 155-192, November.
  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. Marco G. Ercolani & Jayasri Dutta, 2006. "The Euro-changeoverand Euro-inflation: Evidence from Eurostat's HICP," Discussion Papers 06-03, Department of Economics, University of Birmingham.

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