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Inflation Developments and Perceptions after the Euro Cash Changeover

Author

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  • Ehrmann Michael

    (European Central Bank,Frankfurt, Germany)

Abstract

This paper analyses the evolution of inflation and of consumers’ inflation perceptions in the aftermath of the euro cash changeover. It finds that the cross-country variation of food product inflation was dependent on the complexity of conversion rates, with statistically significant and economically sizeable effects especially for low-priced items sold in mid-priced stores. The paper also shows that cross-country differences in the mismatch of perceived and actual inflation were linked to differences in the complexity of conversion rates. These results are in line with theories of finite information-processing capacities on the side of consumers.

Suggested Citation

  • Ehrmann Michael, 2011. "Inflation Developments and Perceptions after the Euro Cash Changeover," German Economic Review, De Gruyter, vol. 12(1), pages 33-58, February.
    • Handle: RePEc:bpj:germec:v:12:y:2011:i:1:p:33-58
    DOI: 10.1111/j.1468-0475.2010.00503.x
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    Cited by:

    1. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2011. "Price Points and Price Rigidity," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1417-1431, November.
    2. Parsley, David & Wei, Shang-Jin, 2008. "In search of a euro effect: Big lessons from a Big Mac Meal?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 260-276, March.
    3. Levy, Daniel & Snir, Avichai, 2013. "Shrinking Goods," MPRA Paper 46040, University Library of Munich, Germany.
    4. Sarah M. Lein & Thomas Maag, 2011. "The Formation Of Inflation Perceptions: Some Empirical Facts For European Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 155-188, May.
    5. Lamla, Michael J. & Lein, Sarah M., 2014. "The role of media for consumers’ inflation expectation formation," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 62-77.
    6. Vitale, Paolo, 2006. "A Market Microstructure Analysis of Foreign Exchange Intervention," CEPR Discussion Papers 5468, C.E.P.R. Discussion Papers.
    7. Lunn, Pete & Duffy, David, 2010. "The Euro Through the Looking-Glass: Perceived Inflation Following the 2002 Currency Changeover," Papers WP338, Economic and Social Research Institute (ESRI).
    8. Amelie Gamble, 2007. "The “Euro Illusion”: Illusion or Fact?," Journal of Consumer Policy, Springer, vol. 30(4), pages 323-336, December.
    9. Christian Bauer & Sebastian Weber, 2016. "The Efficiency of Monetary Policy when Guiding Inflation Expectations," Research Papers in Economics 2016-14, University of Trier, Department of Economics.
    10. Lippi, Francesco & Angelini, Paolo, 2005. "Did Inflation Really Soar After the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals," CEPR Discussion Papers 4950, C.E.P.R. Discussion Papers.
    11. Duca, Ioana A. & Kenny, Geoff & Reuter, Andreas, 2018. "Inflation expectations, consumption and the lower bound: micro evidence from a large euro area survey," Working Paper Series 2196, European Central Bank.
    12. Levy, Daniel & Snir, Avichai, 2022. "Potterian Economics," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1, pages 1-32.
    13. Paolo Angelini & Francesco Lippi, 2008. "Did prices really soar after the euro cash changeover? Evidence from ATM withdrawals," Springer Books, in: Paolo Giovane & Roberto Sabbatini (ed.), The Euro, Inflation and Consumer’s Perceptions, chapter 4, pages 109-124, Springer.
    14. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Bar-Ilan University, Department of Economics.
    15. repec:rim:rimwps:04-07 is not listed on IDEAS
    16. Daniel Dias, 2006. "Measuring the Importance of the Uniform Nonsynchronization Hypothesis," Working Papers w200603, Banco de Portugal, Economics and Research Department.
    17. Felix Hüfner & Isabell Koske, 2008. "The Euro Changeover in the Slovak Republic: Implications for Inflation and Interest Rates," OECD Economics Department Working Papers 632, OECD Publishing.
    18. Valentin Jouvanceau, 2021. "The Effect of the Euro Changeover on Prices: Evidence from Lithuania," Bank of Lithuania Working Paper Series 93, Bank of Lithuania.

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