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

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.