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

By David Parsley and Shang-jin Wei

Abstract

We investigate whether the adoption of the euro was accompanied by an increase in prices in member countries, and whether it promoted goods market arbitrage in the form of faster convergence to a common price. By comparing the experience of eurozone countries to non-euro European countries in a ‘difference-in-differences’ specification we net out effects on prices unrelated to the euro. We conclude that (a) there is no evidence of significant price increases associated with the adoption of the euro even for food items; and (b) there is little systematic evidence of a significant improvement in goods market integration following the euro’s introduction.

Topics: F3 - International Finance
Year: 2007
DOI identifier: 10.2139/ssrn.995491
OAI identifier: oai:mpra.ub.uni-muenchen.de:6041

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