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The Euro Changeover and Its Effects on Price Transparency and Inflation

DZIUDA, WIOLETTA and MASTROBUONI, GIOVANNI (2009) 'The Euro Changeover and Its Effects on Price Transparency and Inflation.' Journal of Money, Credit and Banking, 41 (1). pp. 101-129. ISSN 0022-2879

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Abstract

Despite the expectations of economists that the euro changeover would have no effect on prices, European consumers perceived the opposite. To shed some light on this puzzle, we develop a model of imperfect information in which cheaper goods experience higher price growth after the changeover. Retailers, aware of consumers' difficulties in adopting the new currency, use currency changeovers to increase profits by increasing prices. The lower the price transparency after the changeover, the higher the euro-related inflation. Using data on inflation (Eurostat) and price levels (Economist Intelligence Unit), we show that although the euro changeover did not significantly increase inflation, it nevertheless had a distortionary effect on prices. After the changeover, cheaper goods had higher inflation, and this effect was stronger in countries in which people found dealing with the new currency problematic. © 2009 The Ohio State University.

Item Type: Article
Uncontrolled Keywords: D83; F33; L11; euro; currency changeover; imperfect information; search costs; price setting
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 04 Sep 2013 13:58
Last Modified: 14 Jan 2022 22:01
URI: http://repository.essex.ac.uk/id/eprint/7525

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