2009/01/22 by Wioletta Dziuda, Giovanni Mastrobuoni · 1 citation
Business, Management and Accounting · Economics, Econometrics and Finance · #Consumer Market Behavior and Pricing #Merger and Competition Analysis #Monetary Policy and Economic Impact
paper · pdf · doi:10.1111/j.1538-4616.2008.00189.x
openalex publication_date 2009/01/22 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
Despite the expectations of economists that the euro changeover would have no effect on prices, European consumers perceived the opposite. To shed some light on this puzzle, we develop a model of imperfect information in which cheaper goods experience higher price growth after the changeover. Retailers, aware of consumers' difficulties in adopting the new currency, use currency changeovers to increase profits by increasing prices. The lower the price transparency after the changeover, the higher the euro‐related inflation. Using data on inflation (Eurostat) and price levels (Economist Intelligence Unit), we show that although the euro changeover did not significantly increase inflation, it nevertheless had a distortionary effect on prices. After the changeover, cheaper goods had higher inflation, and this effect was stronger in countries in which people found dealing with the new currency problematic.