Explaining the Persistent Effect of the Euro-Changeover on German Restaurant Prices

This paper studies the long-run effect of the 2002 changeover on restaurant prices in Germany. German restaurant prices increased significantly when the euro was introduced as a new currency but rather than returning to their re-changeover trend, restaurant prices appear to have stabilized on a high...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Author Eife, Thomas A
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2011
Subjects
Prices
Restaurants
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Summary:This paper studies the long-run effect of the 2002 changeover on restaurant prices in Germany. German restaurant prices increased significantly when the euro was introduced as a new currency but rather than returning to their re-changeover trend, restaurant prices appear to have stabilized on a higher path. This stands in contrast to the prediction of menu costs models or models of confusion-induced price increases as these models can only account for a transitory effect. The persistence of the increase suggests the existence of more than one price equilibrium. This multiplicity of price equilibria is a central part of the explanation proposed in the paper.