Psychological costs of currency transition: evidence from the euro adoption

Vladimir Otrachshenko, Olga Popova and Jose Tavares ()

European Journal of Political Economy, 2016, vol. 45, issue C, 89-100

Abstract: This paper assesses the perceived individual psychological costs of adhering to the Euro. We use the difference-in-differences approach (DD), comparing individual levels of satisfaction with the economy in Slovakia immediately before and after the introduction of the Euro, with similar individuals in neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and display similar macroeconomic behavior before and after the currency change in Slovakia. What we assess is not the actual, economic, costs stemming from the Euro adoption, but the change in utility as perceived by the individuals. There is evidence of substantial psychological costs associated with currency transition, especially for the old, the unemployed, the poorly educated and households with children. Our results are robust to the use of alternative control groups and to estimation procedures using the DD matching approach. The significant perceived costs uncovered in this paper suggest policy-makers should not ignore them when considering a sweeping economic change such as the adoption of a new currency.

Keywords: Euro introduction; Currency changeover; Subjective well-being; The Czech Republic; Slovakia (search for similar items in EconPapers)
JEL-codes: E52 F55 I31 P26 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Psychological Costs of Currency Transition: Evidence from Euro Adoption (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:45:y:2016:i:c:p:89-100

DOI: 10.1016/j.ejpoleco.2016.10.002

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