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The Euro Changeover and Its Effects on Price Transparency, and Inflation. Mission Euro, Mission Accomplished!

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Author Info

  • Giovanni Mastrobuoni

    (Princeton University)

  • Wioletta Dziuda

    (Princeton University)

Abstract

Despite the expectations of economists that the euro changeover would have no effect on prices, we show that European consumers perceive 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' difficulties in adopting the new currency, used the changeover to increase profits by increasing prices. We also propose an explanation on why, contrary to common belief, this effect was smaller in more concentrated retail markets.

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File URL: http://128.118.178.162/eps/if/papers/0503/0503003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0503003.

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Length: 49 pages
Date of creation: 10 Mar 2005
Date of revision: 24 May 2005
Handle: RePEc:wpa:wuwpif:0503003

Note: Type of Document - pdf; pages: 49
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Web page: http://128.118.178.162

Related research

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

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References

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  1. Baylis, Kathy & Perloff, Jeffrey M., 2001. "Price Dispersion on the Internet: Good Firms and Bad Firms," Institute for Research on Labor and Employment, Working Paper Series qt2t0770rn, Institute of Industrial Relations, UC Berkeley.
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Cited by:
  1. 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.
  2. 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 and International Relations Area.
  3. 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.

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