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The Euro Changeover and Its Effects on Price Transparency, and Inflation. Mission Euro, Mission Accomplished!

  • Giovanni Mastrobuoni

    (Princeton University)

  • Wioletta Dziuda

    (Princeton University)

Despite the expectations of economists that the euro changeover would have no effect on prices, we show that European consumers perceive 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' difficulties in adopting the new currency, used the changeover to increase profits by increasing prices. We also propose an explanation on why, contrary to common belief, this effect was smaller in more concentrated retail markets.

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Paper provided by EconWPA in its series International Finance with number 0503003.

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Length: 49 pages
Date of creation: 10 Mar 2005
Date of revision: 24 May 2005
Handle: RePEc:wpa:wuwpif:0503003
Note: Type of Document - pdf; pages: 49
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  1. Baylis, Kathy & Perloff, Jeffrey M., 2001. "Price Dispersion on the Internet: Good Firms and Bad Firms," Institute for Research on Labor and Employment, Working Paper Series qt2t0770rn, Institute of Industrial Relations, UC Berkeley.
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