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Psychological costs of currency transition: evidence from the euro adoption

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  • Otrachshenko, Vladimir
  • Popova, Olga
  • Tavares, José

Abstract

This paper assesses the perceived individual psychological costs of adhering to the Euro. We use the difference-in-differences approach (DD), comparing individual levels of satisfaction with the economy in Slovakia immediately before and after the introduction of the Euro, with similar individuals in neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and display similar macroeconomic behavior before and after the currency change in Slovakia. What we assess is not the actual, economic, costs stemming from the Euro adoption, but the change in utility as perceived by the individuals. There is evidence of substantial psychological costs associated with currency transition, especially for the old, the unemployed, the poorly educated and households with children. Our results are robust to the use of alternative control groups and to estimation procedures using the DD matching approach. The significant perceived costs uncovered in this paper suggest policy-makers should not ignore them when considering a sweeping economic change such as the adoption of a new currency.

Suggested Citation

  • Otrachshenko, Vladimir & Popova, Olga & Tavares, José, 2016. "Psychological costs of currency transition: evidence from the euro adoption," European Journal of Political Economy, Elsevier, vol. 45(C), pages 89-100.
  • Handle: RePEc:eee:poleco:v:45:y:2016:i:c:p:89-100
    DOI: 10.1016/j.ejpoleco.2016.10.002
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    1. Alexander Libman & Olga Popova, 2023. "Children of Communism: Former Party Membership and the Demand for Redistribution," Eastern European Economics, Taylor & Francis Journals, vol. 61(3), pages 199-237, May.
    2. Otrachshenko, Vladimir & Tyurina, Elena & Nagapetyan, Artur, 2022. "The economic value of the Glass Beach: Contingent valuation and life satisfaction approaches," Ecological Economics, Elsevier, vol. 198(C).
    3. Milena Nikolova & Boris Nikolaev, 2017. "Does Joining the EU Make You Happy? Evidence from Bulgaria and Romania," Journal of Happiness Studies, Springer, vol. 18(6), pages 1593-1623, December.
    4. Popova, Olga & See, Sarah Grace & Nikolova, Milena & Otrachshenko, Vladimir, 2023. "The Societal Costs of Inflation and Unemployment," IZA Discussion Papers 16541, Institute of Labor Economics (IZA).
    5. Otrachshenko, Vladimir & Nikolova, Milena & Popova, Olga, 2021. "Double-edged sword: Persistent effects of Communism on life satisfaction," GLO Discussion Paper Series 927, Global Labor Organization (GLO).
    6. Nikolova Milena & Popova Olga, 2021. "Sometimes Your Best Just Ain’t Good Enough: The Worldwide Evidence on Subjective Well-being Efficiency," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 21(1), pages 83-114, January.
    7. Mavisakalyan, Astghik & Otrachshenko, Vladimir & Popova, Olga, 2021. "Can bribery buy health? Evidence from post-communist countries," Journal of Comparative Economics, Elsevier, vol. 49(4), pages 991-1007.
    8. Vladimir Otrachshenko & Milena Nikolova & Olga Popova, 2023. "Double-edged sword: persistent effects of Communist regime affiliations on well-being and preferences," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(3), pages 1139-1185, July.

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    More about this item

    Keywords

    Euro introduction; Currency changeover; Subjective well-being; The Czech Republic; Slovakia;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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