2006/07/17 by Bart Hobijn, Federico Ravenna, Andrea Tambalotti · 3 citations
Economics, Econometrics and Finance · #Monetary Policy and Economic Impact #Economics of Agriculture and Food Markets #Economic Theory and Policy
paper · doi:10.1162/qjec.121.3.1103
openalex publication_date 2006/07/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/03
Restaurant prices in the euro area increased dramatically after the introduction of the euro. We show that this increase can be explained by a common menu cost model, extended to include a state-dependent decision of firms on when to adopt the new currency. Two mechanisms drive this result. First, firms concentrate otherwise staggered price increases around the changeover. Second, before the adoption of the euro, prices do not reflect the marginal cost increases expected to occur after the changeover. This “horizon effect” disappears as soon as the new currency is adopted, causing a jump in the optimal price.