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

Giovanni Mastrobuoni () and Wioletta Dziuda ()

International Finance from EconWPA

Abstract: 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.

Keywords: euro; currency changeover; imperfect information; search costs; price setting (search for similar items in EconPapers)
JEL-codes: D83 F33 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mon
Date: 2005-03-10, Revised 2005-05-24
Note: Type of Document - pdf; pages: 49
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0503003

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