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|
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- 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.
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- 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, Europa-Universität Flensburg, International Institute of Management. Full references (including those not matched with items on IDEAS)