Explaining the Persistent Effect of the Euro-Changeover on German Restaurant Prices

Thomas Eife ()

No 518, Working Papers from University of Heidelberg, Department of Economics

Abstract: This paper studies the long-run effect of the 2002 changeover on restaurant prices in Germany. German restaurant prices increased significantly when the euro was introduced as a new currency but rather than returning to their re-changeover trend, restaurant prices appear to have stabilized on a higher path. This stands in contrast to the prediction of menu costs models or models of confusion-induced price increases as these models can only account for a transitory effect. The persistence of the increase suggests the existence of more than one price equilibrium. This multiplicity of price equilibria is a central part of the explanation proposed in the paper.

JEL-codes: D43 E31 L13 L89 (search for similar items in EconPapers)
Date: 2011-10-14
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