Menu costs at work: Restaurant prices and the introduction of the Euro

Arbeitspapier

Restaurant prices in the Euro area saw an unprecedented increase after the introduction of the Euro. We use an extension of commonly used models of sticky prices and argue that the increase in restaurant prices can be explained by menu costs. The extension we use involves the state-dependent decision of firms about when to adopt the Euro. Two main mechanisms drive the result. First, our model concentrates otherwise staggered price increases around the introduction of the Euro. Second, before the adoption of the Euro, prices do not reflect marginal cost increases expected to occur after the changeover. This horizon effect disappears as soon as the new currency is adopted, contributing to a jump in prices at that time. For realistic parameter values, the model generates a blip in inflation of the same magnitude observed in the data

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 195

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Industry Studies: Services: Other
• Subject: Anpassungskosten ; Preisrigidität ; Monopolistischer Wettbewerb ; Inflation ; Gastronomie ; Euro ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hobijn, Bart ; Ravenna, Federico ; Tambalotti, Andrea
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/60548
• Last update: 10.03.2025, 11:43 AM CET