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Transitional Price Rises with the Adoption of the Euro: Aggregate and Disaggregate Sector Evidence

  • Marco G Ercolani

This paper presents a time-series regression analysis of price in ation at the time of the euro currency changeover in January 2002. Cross-equation tests on twelve euro countries and three non-euro EU countries are used to identify signi cant changes in in ation around that time. For a small number of prod- uct and service categories (mainly small-scale service industries), higher than expected in ation immediately after the euro currency changeover suggest the possible existence of menu costs, sellers' rounding up of prices or buyers' tem- porary rational inattention. However, the lack of evidence for reduced in ation immediately prior to the euro changeover suggests menu costs are not impor- tant.

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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/09-18.pdf
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Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 09-18.

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Length: 108 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:bir:birmec:09-18
Contact details of provider: Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk

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  1. Bart Hobijn & Andrea Tanbalotti & Federico Ravenna, 2005. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," 2005 Meeting Papers 659, Society for Economic Dynamics.
  2. Kozicki, Sharon & Hoffman, Barak, 2004. "Rounding Error: A Distorting Influence on Index Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 319-38, June.
  3. 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.
  4. Paolo Angelini & Francesco Lippi, 2006. "Did inflation really soar after the euro cash changeover? Indirect evidence from ATM withdrawals," Temi di discussione (Economic working papers) 581, Bank of Italy, Economic Research and International Relations Area.
  5. C.K. Folkertsma, 2001. "The Euro and Psychological Prices: Simulations of the Worst-Case Scenario," WO Research Memoranda (discontinued) 659, Netherlands Central Bank, Research Department.
  6. V. Bhaskar, 2002. "On Endogenously Staggered Prices," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 97-116.
  7. Gaiotti, Eugenio & Lippi, Francesco, 2005. "Pricing Behaviour and the Introduction of the Euro: Evidence from a Panel of Restaurants," CEPR Discussion Papers 4893, C.E.P.R. Discussion Papers.
  8. Fabrizio Adriani & Giancarlo Marini & Pasquale Scaramozzino, 2004. "The Inflationary Consequences Of A Currency Changeover: Evidence From The Michelin Red Guide," Royal Economic Society Annual Conference 2004 45, Royal Economic Society.
  9. Elliot D. Williams, 2006. "The Effects of Rounding on the Consumer Price Index," Working Papers 397, U.S. Bureau of Labor Statistics.
  10. Carlos Coimbra & Daniel Santos & Rui Evangelista & Teresa Nascimento, 2002. "Analysis on the Impact of the Conversion of Escudos into Euros," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  11. C.K. Folkertsma & C. van Renselaar & A.C.J. Stokman, 2002. "Smooth Euro Changeover, Higher Prices? Results of a Survey Among Dutch Retailers," WO Research Memoranda (discontinued) 682, Netherlands Central Bank, Research Department.
  12. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
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