A Big Mac Test of Price Dynamics and Dispersion Across Euro Area
Economics Bulletin, Vol. 30, No. 3, 2010
14 Pages Posted: 15 Jan 2010 Last revised: 9 Apr 2011
Date Written: January 14, 2010
Based on the prices of McDonald’s Big Mac hamburger in 11 Eurozone countries over the 1986-2009 period, the present article investigates whether the adoption of the euro was accompanied by an increase in inflation and how far it affected developments in price dispersion. Our results indicate that the Eurozone inflation rate after the introduction of the euro is on average significantly higher than prior to the changeover. Additionally, we find no evidence of a further significant reduction in price dispersion since the euro switchover in comparison with the previous period during which progress towards a leveling of existing price differentials had been made.
Keywords: Euro, inflation, price dispersion, Big Mac
JEL Classification: E31, F33, F36
Suggested Citation: Suggested Citation