Abstract
The introduction of the euro was accompanied by promises of lower inflation rates; however, the public feels that inflation increased when the euro was introduced. Officials admit that certain sectors experienced substantial price increases, but they claim that the overall inflation rate did not increase. This paper investigates whether inflation in 15 European countries experienced a structural break after the euro was introduced using new powerful and serial correlation robust test statistics. We find evidence that the European Monetary Union (EMU) countries experienced a positive break in inflation after 1999. Our results demonstrate that inflation just after the introduction of the euro was higher relative to the inflation just prior to the introduction of the euro. Additionally, we find no evidence of positive breaks for the non-EMU countries when the euro was introduced.
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The author would like to thank Betty C. Daniel, Ozgen Sayginsoy and three anonymous referees for their helpful comments and suggestions.
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Shiamptanis, C. Did the euro give us a break in inflation?. Empir Econ 39, 395–411 (2010). https://doi.org/10.1007/s00181-009-0309-3
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DOI: https://doi.org/10.1007/s00181-009-0309-3