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Pricing behavior and the introduction of the euro: evidence from a panel of restaurants

Author

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  • Eugenio Gaiotti

    (Banca d'Italia)

  • Francesco Lippi

    (Banca d'Italia)

Abstract

This paper assembles an original panel of data from 2,500 restaurants in Italy over 1998-2004, with the objective of studying whether the euro cash changeover had an impact on individual pricing behavior, as apparently perceived by consumers, and which economic mechanisms may explain it. On the first point, the data show that only about a price increase of 3-4 percentage points can be attributed to the new currency; the changeover focussed the public attention over a medium-run trend, prompting the attribution of the whole increase to the introduction of the euro. On the second point, we reach two conclusions. We find evidence consistent with the existence of “menu-costs”: during the changeover the rise in the average meal price is mainly due to a larger fraction of agents who simultaneously revise their price. We also find that during the changeover more market power (proxied by a index of concentration on local markets) was associated with larger price increases; we propose a simple interpretation based on consumer behavior which may also explain why the effects of the cash changeover were especially pronounced in this industry as opposed to more competitive ones.

Suggested Citation

  • Eugenio Gaiotti & Francesco Lippi, 2005. "Pricing behavior and the introduction of the euro: evidence from a panel of restaurants," Macroeconomics 0501029, University Library of Munich, Germany, revised 15 Feb 2005.
    • Handle: RePEc:wpa:wuwpma:0501029
    Note: Type of Document - pdf; pages: 45
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    References listed on IDEAS

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    1. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 655-690.
    2. Bart Hobijn & Federico Ravenna & Andrea Tambalotti, 2006. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 1103-1131.
    3. Giancarlo Marini & Fabrizio Adriani & Pasquale Scaramozzino, 2003. "The Inflationary Consequences of a Currency Changeover: Evidence from the Michelin Red Guide," CEIS Research Paper 27, Tor Vergata University, CEIS.
    4. Fabiani, Silvia & Gattulli, Angela & Sabbatini, Roberto, 2004. "The pricing behaviour of Italian firms: new survey evidence on price stickiness," Working Paper Series 333, European Central Bank.
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    Cited by:

    1. repec:awi:wpaper:0477 is not listed on IDEAS
    2. Denis Fougère & Erwan Gautier & Hervé Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
    3. Fabrizio Adriani & Giancarlo Marini & Pasquale Scaramozzino, 2009. "The Inflationary Consequences of a Currency Changeover on the Catering Sector: Evidence from the Michelin Red Guide," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 111-133, February.
    4. Fabiano Schivardi & Eliana Viviano, 2007. "Entry barriers in Italian retail trade," Temi di discussione (Economic working papers) 616, Bank of Italy, Economic Research and International Relations Area.
    5. Columba, Francesco, 2008. "The speed of euro adoption," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 249-259, March.
    6. Jérôme Accardo & Claire Célérier & Nicolas Herpin & Delphine Irac, 2011. "L'inflation perçue," Économie et Statistique, Programme National Persée, vol. 447(1), pages 3-31.
    7. Marco Ercolani, 2010. "Transitional price rises with the adoption of the euro: aggregate and disaggregate sector evidence," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 137-157.
    8. Theodore Pelagidis & Taun Toay, 2007. "Expensive Living: The Greek Experience under the Euro," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 42(3), pages 167-176, May.
    9. Tairi Room & Katri Urke, 2014. "The Euro Changeover in Estonia: implications for inflation," Bank of Estonia Working Papers wp2014-6, Bank of Estonia, revised 10 Oct 2014.
    10. Wioletta Dziuda & Giovanni Mastrobuoni, 2009. "The Euro Changeover and Its Effects on Price Transparency and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 101-129, February.
    11. Isabell Koske, 2011. "Price effects of the euro cash changeover: the role of product market competition," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(2), pages 223-230, May.
    12. 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.
    13. Paolo Giovane & Roberto Sabbatini, 2008. "Perceived and measured inflation after the launch of the euro: explaining the gap in Italy," Springer Books, in: Paolo Giovane & Roberto Sabbatini (ed.), The Euro, Inflation and Consumer’s Perceptions, chapter 1, pages 13-49, Springer.
    14. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 588, European Central Bank.
    15. 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.
    16. Bart Hobijn & Federico Ravenna & Andrea Tambalotti, 2006. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 1103-1131.
    17. Jaanika Meriküll & Tairi Rõõm, 2015. "One Currency, One Price? Euro Changeover-Related Inflation in Estonia," Journal of Common Market Studies, Wiley Blackwell, vol. 53(4), pages 822-839, July.
    18. Paolo Angelini & Francesco Lippi, 2008. "Did prices really soar after the euro cash changeover? Evidence from ATM withdrawals," Springer Books, in: Paolo Giovane & Roberto Sabbatini (ed.), The Euro, Inflation and Consumer’s Perceptions, chapter 4, pages 109-124, Springer.
    19. Fabiano Schivardi & Eliana Viviano, 2011. "Entry Barriers in Retail Trade," Economic Journal, Royal Economic Society, vol. 121(551), pages 145-170, March.
    20. Lippi, Francesco & Angelini, Paolo, 2005. "Did Inflation Really Soar After the Euro Cash Changeover? Indirect Evidence from ATM Withdrawals," CEPR Discussion Papers 4950, C.E.P.R. Discussion Papers.
    21. Stix, Helmut, 2009. "Perceived inflation and the euro: Evidence from an Austrian survey," European Journal of Political Economy, Elsevier, vol. 25(4), pages 547-561, December.
    22. Felix Hüfner & Isabell Koske, 2008. "The Euro Changeover in the Slovak Republic: Implications for Inflation and Interest Rates," OECD Economics Department Working Papers 632, OECD Publishing.

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    More about this item

    Keywords

    euro cash changeover; menu cost;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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