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Coping with People's Inflation Perceptions during a Currency Changeover

  • Thomas A. Eife

    ()

    (University of Heidelberg, Department of Economics)

  • W. Timothy Coombs

    ()

    (University of Illinois)

The discrepancy between popular impressions of how the 2002 changeover to the euro affected prices and its actual impact is perhaps the most surprising consequence of the single currency’s introduction. Following the changeover, perceived inflation rose significantly and returned to its prechangeover level only several months later. This paper argues that people’s inflation misperceptions could have been avoided. Using principles of crisis communication, we identify the mistakes made and present policy recommendations for future changeovers

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp458.pdf
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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0458.

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Length: 24 pages
Date of creation: Nov 2007
Date of revision: Nov 2007
Handle: RePEc:awi:wpaper:0458
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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Christoph Wunder & Johannes Schwarze & Gerhard Krug & Bodo Herzog, 2006. "Welfare Effects of the Euro Cash Changeover," Discussion Papers of DIW Berlin 646, DIW Berlin, German Institute for Economic Research.
  3. Luc Aucremanne & Marianne Collin & Thomas Stragier, 2007. "Assessing the Gap between Observed and Perceived Inflation in the Euro Area : Is the Credibility of the HICP at Stake ?," Working Paper Research 112, National Bank of Belgium.
  4. 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.
  5. Giovanni Mastrobuoni & Wioletta Dziuda, 2005. "The Euro Changeover and its Effects on Price Transparency and Inflation," Carlo Alberto Notebooks 26, Collegio Carlo Alberto, revised 2006.
  6. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 0588, European Central Bank.
  7. Thomas A. Eife & Stephan Meier, 2007. "Costly Inflation Misperceptions," Working Papers 0455, University of Heidelberg, Department of Economics, revised Oct 2007.
  8. Eife, Thomas, 2006. "Currency Changeovers as Natural Experiments," Munich Dissertations in Economics 5839, University of Munich, Department of Economics.
  9. 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.
  10. Brachinger, Hans Wolfgang, 2006. "Euro or “Teuro”?: The Euro-induced Perceived Inflation in Germany," DQE Working Papers 5, Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland.
  11. Bettina Isengard & Thorsten Schneider, 2006. "The euro and its perception in the German population," Discussion Papers 011, University of Flensburg, International Institute of Management.
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