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The Effects of the Euro-Conversion on Prices and Price Perceptions

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  • Giovanni Mastrobuoni

    (Princeton University)

Abstract

Despite the expectations of economists that the euro changeover would have no effect on prices, I show that European consumers perceive the contrary. The data indicate that consumers based their perceptions about inflation on goods that are frequently purchased. I 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 Spain, Italy and France show a stronger euro-effect on prices. The data also suggest that this price growth is correlated with consumers' ability to adapt to the new currency.

Suggested Citation

  • Giovanni Mastrobuoni, 2004. "The Effects of the Euro-Conversion on Prices and Price Perceptions," Working Papers 101, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:101
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    References listed on IDEAS

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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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    5. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(3), pages 305-324, November.
    6. Avishay Braverman, 1980. "Consumer Search and Alternative Market Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(3), pages 487-502.
    7. D. Grant Devine & Bruce W. Marion, 1979. "The Influence of Consumer Price Information on Retail Pricing and Consumer Behavior," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(2), pages 228-237.
    8. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Karel Lacina, 2011. "Remarks to the Development of Public Administration from the Concept of ½Government½ to the Concept of ½Governance½," ACTA VSFS, University of Finance and Administration, vol. 5(2), pages 126-147.
    2. Ladislav Prusa, 2011. "Public Governance, Social Services and Social Assistance Benefits," ACTA VSFS, University of Finance and Administration, vol. 5(2), pages 166-176.
    3. Jaroslav Vostatek, 2011. "The Role of Governance in Pension Systems," ACTA VSFS, University of Finance and Administration, vol. 5(2), pages 106-125.
    4. 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.
    5. Ehrmann, Michael, 2006. "Rational inattention, inflation developments and perceptions after the euro cash changeover," Working Paper Series 588, European Central Bank.
    6. Michael Diederich, 2011. "Corporate Governance in Germany," ACTA VSFS, University of Finance and Administration, vol. 5(2), pages 148-165.
    7. Krystian Mucha, 2010. "Czynniki wyjaśniające zjawisko luki percepcji wśród konsumentów w okresie przyjmowania euro," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1-2, pages 67-87.
    8. 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.
    9. 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.
    10. Petr Gocev, 2011. "Prospects of Adopting the Euro in the Czech Republic," ACTA VSFS, University of Finance and Administration, vol. 5(2), pages 177-185.
    11. Reinhard Neck & Klaus Weyerstrass, 2019. "Macroeconomic Effects of Serbia’s Integration in the EU and the Euro Area," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 25(3), pages 277-292, August.
    12. Nicolae Marinescu, 2018. "The Impact Of The Changeover To The Euro For Eastern European Companies," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 102-107, June.

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    More about this item

    Keywords

    euro; currency changeover; imperfect information; search costs; price setting;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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