Abstract

http://ssrn.com/abstract=995491
 
 

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In Search of a Euro Effect: Big Lessons from a Big Mac Meal?


David C. Parsley


Vanderbilt University – Finance

Shang-Jin Wei


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

August 19, 2007


Abstract:     
Using highly disaggregated price data of the Big Mac Meal and its ten ingredients from twenty-five European countries since 1993, we investigate two questions related to the effects of the adoption of the Euro on prices. First, was the changeover to the euro accompanied, as many believe, by an increase in prices in member countries? Second, does the adoption of the euro promote goods market arbitrage in the form of a faster speed of convergence to a common price? On the first question, in order to net out global or regional effects on prices not related to the adoption of the euro, we compare the experience of eurozone countries to non-euro European countries in a 'difference-in-differences' specification. We perform statistical tests over different time horizons, and conclude that there is no evidence of significant price increases associated with the adoption of the euro even for food items. On the second question, we examine the trend in price dispersion as well as the persistence of deviations from the law of one price. Once After properly accounting for possible non-linearities, we find little systematic evidence of a significant improvement in goods market integration following the introduction of the euro. On these two questions (at least), there is no euro effect to be found.

Number of Pages in PDF File: 25

Keywords: price dispersion, goods market integration, euro

JEL Classification: F31

working papers series


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Date posted: June 21, 2007  

Suggested Citation

Parsley, David C. and Wei, Shang-Jin, In Search of a Euro Effect: Big Lessons from a Big Mac Meal? (August 19, 2007). Available at SSRN: http://ssrn.com/abstract=995491 or http://dx.doi.org/10.2139/ssrn.995491

Contact Information

David C. Parsley (Contact Author)
Vanderbilt University – Finance ( email )
401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)

Shang-Jin Wei
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
International Monetary Fund (IMF)
700 19th Street, N.W.
Washington, DC 20431
United States
Tsinghua University - School of Economics & Management
Beijing, 100084
China
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