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The Effects of the Euro-Conversion on Prices and Price Perceptions
, 2004
"... 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 est ..."
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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. I am particularly indebt to Wioletta Dziuda, Orley Ashenfelter, Matt Weinberg, Julie Schultz and all participants at the Princeton Labor Lunch Seminar.
