Title

The Effects of the Euro-Conversion on Prices and Price Perceptions

Author(s)

Giovanni Mastrobuoni Giovanni Mastrobuoni (Princeton University)

Abstract

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.

Creation Date

2004-09

Section URL ID

CEPS

Paper Number

101

URL

https://gceps.princeton.edu/wp-content/uploads/2017/01/101mastrobuoni.pdf

File Function

Jel

D83, F33, L11

Keyword(s)

euro, currency changeover, imperfect information, search costs, price setting

Suppress

false

Series

3