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Price Convergence in Euroland. Evidence from micro data without noise

Author

Listed:
  • Sophie-Charlotte Meyer

    () (University of Wuppertal)

  • Ronald Schettkat

    () (University of Wuppertal)

Abstract

Analyzing prices of truly homogenous consumer goods sold in Euroland, we find significant price convergence after the Euro cash changeover in 2002. The deviation of national log prices from the mean log price of the same product is much narrower with the Euro than before. We observe Sigma and Beta convergence, i.e. prices do not differ systematically between countries. Our result is in contrast to some other findings stating divergence rather than convergence but which do not control perfectly for heterogeneity of products. Because of information and transportation costs arbitrage is unlikely to occur in consumer items and reasons for convergence must therefore be sought in competition and advantages on the supplier’s side. If suppliers would minimize menu costs, price for the same item should be identical, which we do not observe.

Suggested Citation

  • Sophie-Charlotte Meyer & Ronald Schettkat, 2013. "Price Convergence in Euroland. Evidence from micro data without noise," Schumpeter Discussion Papers sdp13005, Universitätsbibliothek Wuppertal, University Library.
  • Handle: RePEc:bwu:schdps:sdp13005
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    References listed on IDEAS

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    Keywords

    convergence; price setting; law of one price; Euro; homogenous products;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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