Friday, November 30, 2007

Did the Euro Cause Inflation?

Many people in France and elsewhere in Europe are absolutely convinced that businesses availed themselves of the introduction of the euro to raise prices, despite the prohibition of the practice. A new paper uses evidence from ATM withdrawals to test this hypothesis and finds it does not stand up.

2 comments:

Anonymous said...

Nice paper. This is the latest of many pointing to much the same conclusion. But the researchers struggle in vain. My sense is that the popular belief that prices were hiked when euro notes and coins were first introduced will never die.

It probably reflects the fact that people's subjective perceptions of inflation have more to do with the prices of things they purchase frequently (even if these account for a small part of their total consumption) than the overall cost of living.

If the prices of small every-day items like espresso, newspapers and croissants (all essential elements of a civilised existence) were rounded up when the euro was introduced, people will have noticed this, probably without observing the prices of, say, housing, transport, clothing, etc, did not.

Joe said...

The Euro rose above every major currency to a greater degree than the dollar was devalued. They will have to deal with this issue soon, because it only indulges even further the mad methods behind the Chinese economy's undervaluing of their own currency.