Costly Inflation Misperceptions
One of the consequences of the euro changeover in 2002 was that for a period of several years people considerably overestimated actual inflation. The goal of this paper is to study whether misperceptions of this kind may have real effects, that is, whether they induce people to alter their behaviour. We also discuss the question how far the euro changeover and the ensuing discussion about price stability contributed to the recession that followed the changeover. Looking at the German restaurant sector, we find that people’s misperceptions can have significant negative effects. The contraction this sector experienced in the months after the changeover was too pronounced to be explained by normal business cycle movements. We provide a discussion about the causes of these misperceptions and how to avoid them in future changeovers.
|Date of creation:||Oct 2007|
|Date of revision:||Oct 2007|
|Contact details of provider:|| Postal: |
Phone: +49-6221-54 2905
Fax: +49-6221-54 2914
Web page: http://www.awi.uni-heidelberg.de/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas A. Eife & W. Timothy Coombs, 2006.
"Coping with People’s Inflation Perceptions During a Currency Changeover,"
0435, University of Heidelberg, Department of Economics, revised Dec 2006.
- Thomas A. Eife & W. Timothy Coombs, 2007. "Coping with People's Inflation Perceptions during a Currency Changeover," Working Papers 0458, University of Heidelberg, Department of Economics, revised Nov 2007.
- 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.
- Bettina Isengard & Thorsten Schneider, 2006. "The euro and its perception in the German population," Discussion Papers 011, University of Flensburg, International Institute of Management.
- Vincenzo Cestari & Paolo Del Giovane & Clelia Rossi-Arnaud, 2007. "Memory for prices and the euro cash changeover: An analysis for cinema prices in Italy," Temi di discussione (Economic working papers) 619, Bank of Italy, Economic Research and International Relations Area.
- Wunder, Christoph & Schwarze, Johannes & Krug, Gerhard & Herzog, Bodo, 2006.
"Welfare Effects of the Euro Cash Changeover,"
IZA Discussion Papers
2508, Institute for the Study of Labor (IZA).
- Manfred Fluch & Helmut Stix, 2005. "Perceived Inflation in Austria – Extent, Explanations, Effects," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 22–47.
When requesting a correction, please mention this item's handle: RePEc:awi:wpaper:0455. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabi Rauscher)
If references are entirely missing, you can add them using this form.