The Euro Changeover and the Factors Influencing Perceived Inflation
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The most flamboyant economic effect of the euro changeover on consumers was a dramatic increase in perceived inflation. To directly measure perceived inflation, Brachinger developed a new index of perceived inflation (IPI). This index is based on some hypotheses about factors influencing perceived inflation. An experimental study is presented which investigated the influence of two of these hypothesized factors, purchase frequency and loss aversion, on individual judgments of price changes. Furthermore, two additional factors have been included that are informative with respect to the IPI, product segment and price level. Judgments of inflation were assessed with three methods, yielding different results. Empirical evidence for the hypotheses was obtained.
KeywordsPerceived inflation Index of perceived inflation (IPI) Loss aversion Purchase frequency
JEL classificationC43 E31 D81
The authors thank Dr. Gisela Kröger of the Statistical State Office Berlin for her valuable support.
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