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The Effects of the Euro-Conversion on Prices and Price Perceptions

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Author Info
Giovanni Mastrobuoni (Princeton University)
Abstract

Despite the expectations of economists that the euro changeover would have no effect on prices, I show that European consumers perceive the contrary. The data indicate that consumers based their perceptions about inflation on goods that are frequently purchased. I 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 Spain, Italy and France show a stronger euro-effect on prices. The data also suggest that this price growth is correlated with consumers’ ability to adapt to the new currency.

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File URL: http://www.princeton.edu/~ceps/workingpapers/101mastrobuoni.pdf
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Paper provided by Princeton University, Department of Economics, Center for Economic Policy Studies. in its series Working Papers with number 101.

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Date of creation: Sep 2004
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Handle: RePEc:pri:cepsud:101

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Related research
Keywords: euro; currency changeover; imperfect information; search costs; price setting;

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Find related papers by JEL classification:
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

Cited by:
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  1. 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. [Downloadable!]
  2. Paolo Angelini & Francesco Lippi, 2007. "Did Prices Really Soar after the Euro Cash Changeover? Evidence from ATM Withdrawals," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 1-22, December. [Downloadable!]
  3. Paolo Angelini & Francesco Lippi, 2006. "Did inflation really soar after the euro cash changeover? Indirect evidence from ATM withdrawals," Temi di discussione (Economic working papers) 581, Bank of Italy, Economic Research Department. [Downloadable!]
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  4. Michael Ehrmann, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 588, European Central Bank. [Downloadable!]
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