The Impact of the Euro Changeover on Inflation: Evidence from the Harmonised Index of Consumer Prices

Marco Ercolani and Jayasri Dutta

Chapter 10 in The Travails of the Eurozone, 2007, pp 233-270 from Palgrave Macmillan

Abstract: Abstract Although anecdotal evidence has emerged to suggest that the prices of some goods did rise substantially at the time euro notes and coins were introduced, there have been few studies that have attempted to test this formally. Here we present formal statistical tests for the occurrence of a sudden increase in the aggregate price level for the 12 countries that undertook the changeover to euro notes and coins on 1 January 2002. Any sudden increase in the price level can also be detected as a temporary but substantial one-period rise in the rate of inflation. We use the countries that did not participate in the euro-changeover — Denmark, Sweden and the UK — as a control group for the formal statistical tests. We find that although the results are sensitive to the estimation method and to how the data are treated, there is weak evidence of a slight temporary increase in aggregate inflation (EuroStat code cp00) in January 2002 for the countries that did join the euro compared to those that did not. The data we use are from the New Cronos HICP (2005) monthly Harmonised Index of Consumer Prices (HICP) as supplied by EuroStat and cover the period 1995 to 2005.

Keywords: Price Index; Euro Area; Price Increase; Price Movement; Price Adjustment (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-80147-9_10

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DOI: 10.1057/9780230801479_10

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