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The Euro Changeover and its Effects on Price Transparency and Inflation

  • Giovanni Mastrobuoni
  • Wioletta Dziuda

Despite the expectations of economists that the euro changeover would have no effect on prices, we show that European consumers perceived the contrary. The data indicate that consumers based their perceptions about inflation on goods that are cheaper and more frequently purchased. We use this insight to develop and estimate a model of imperfect information that explains why these goods were subject to higher price growth after the changeover. The data indicate that some retailers, aware of the consumers' diffculties in adopting the new currency, used the changeover to increase profits by increasing prices. We also propose an explanation of why this effect was smaller in more concentrated retail markets.

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File URL: http://www.carloalberto.org/assets/working-papers/no.26.pdf
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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 26.

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Length: 37 pages
Date of creation: 2005
Date of revision: 2006
Handle: RePEc:cca:wpaper:26
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  1. 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.
  2. 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.
  3. Marco G. Ercolani & Jayasri Dutta, 2006. "The Euro-changeoverand Euro-inflation: Evidence from Eurostat's HICP," Discussion Papers 06-03, Department of Economics, University of Birmingham.
  4. Franco Mostacci & Roberto Sabbatini, 2003. "L 'euro ha creato inflazione? Changeover e arrotondamenti dei prezzi al consumo in Italia nel 2002," Moneta e Credito, Economia civile, vol. 56(221), pages 45-95.
  5. Fabiani, Silvia & Loupias, Claire & Martins, Fernando & Sabbatini, Roberto (ed.), 2007. "Pricing Decisions in the Euro Area: How Firms Set Prices and Why," OUP Catalogue, Oxford University Press, number 9780195309287, December.
  6. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
  7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  8. Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
  9. Aucremanne, L. & Cornille, D., 2001. "Attractive Prices and Euro-Rounding Effects on Inflation," Papers 17, Warwick - Development Economics Research Centre.
  10. Luis J. Álvarez & Ignacio Hernando, 2006. "Competition and price adjustment in the euro area," Working Papers 0629, Banco de España;Working Papers Homepage.
  11. Luc Aucremann & David Cornille, 2001. "Attractive prices and euro-rounding effects on inflation," Working Paper Document 17, National Bank of Belgium.
  12. Paolo Del Giovane & Roberto Sabbatini, 2004. "L�introduzione dell�euro e la divergenza tra infl azione rilevata e percepita," Temi di discussione (Economic working papers) 532, Bank of Italy, Economic Research and International Relations Area.
  13. Bart Hobijn & Federico Ravenna & Andrea Tambalotti, 2004. "Menu costs at work: restaurant prices and the introduction of the euro," Staff Reports 195, Federal Reserve Bank of New York.
  14. 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.
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