The Inflationary Consequences of a Currency Changeover: Evidence from the Michelin Red Guide
23 Pages Posted: 25 Jul 2003
Date Written: July 2003
This paper examines the inflationary consequences of a currency changeover in a simple model of the catering market. It is shown that the change in cash denomination acts as a coordination device shifting the industry to a high-price equilibrium. Empirical evidence based on data from the Michelin Red Guide strongly supports the predictions of our model against competing explanations. A permanent change in relative prices has taken place in Euroland, with strong redistributional effects in favour of some segments of the catering sector.
Suggested Citation: Suggested Citation