Transitional Price Rises with the Adoption of the Euro: Aggregate and Disaggregate Sector Evidence

This paper presents a time-series regression analysis of price in ation at the time of the euro currency changeover in January 2002. Cross-equation tests on twelve euro countries and three non-euro EU countries are used to identify signicant changes in in ation around that time. For a small number of prod- uct and service categories (mainly small-scale service industries), higher than expected in ation immediately after the euro currency changeover suggest the possible existence of menu costs, sellers' rounding up of prices or buyers' tem- porary rational inattention. However, the lack of evidence for reduced in ation immediately prior to the euro changeover suggests menu costs are not impor- tant.