In this days I was wondered about what were the reasons of the rise in prices people suffered (or thought to suffer) after the currency change in
They explain how the rise in prices is happened only in some sectors where the competition between firms was absent or low. As an example, in these articles, researchers shows that, even if in the third sector (the services sector: restaurants, bars, pubs, etc…) the inflation rate has been much elevate, in other sectors, like the technological one, there has been a decrease in prices.
The problems on which I am a little bit confused are those ones:
- Starting from the assumption that common people suffered by a very elevate infaltion rate and a decrease in their living standards after 2002, I was wondering how the the inflation rate of ISTAT is computed: probably ISTAT method to compute inflation rate is not the most appropriate one. The only reason I can think about it, is that ISTAT gives, as an example, the same importance to the purchase of a dvd player (technological good) as the purchase of bread or milk (primary goods)..
- The decrease in prices in the technological sector is not connected to the currency change but is a characteristic of that specific sector due to the continuing innovations. For this reason I would like to know if the decrease rate in prices before 2002 was the same or higher than the 2002 one.
Questions:
- I was interested in knowing if someone knows some articles where is explained and justified the difference between the perceived infaltion rate (by people after 2002) and the “real” one (that computed by ISTAT). Moreover I would like to know if there are some papers in which is shown how the inflation rate is computed by ISTAT.
- I was also interested in knowing if some authors have created a microeconomic theoretical model to explain the phenomenon of the rise in prices after the currency change.
Thanks
5 comments:
I'm really not skilled in these topics, but i can remind the usual simplistic explanation provided by some political parties (i.e. Silvio Berlusconi) before yearly election periods: being the change 1936,27, it is easy for people to assume 1 euro = 2k lire, consequently interpreting the price as higher than real.
Obviously this is not a comprehensive answer, neither a scientific or objective one. But I guess some explanations actually rely on psychology and transmission of information.
No articles to suggest!
I can suggest some readings:
by ISAE:
2002, “L’infazione effettiva e quella percepita dai consumatori”, Rapporto trimestrale, luglio.
2003, “La conversione approsimata dei prezzi in euro nelle valute nazionali e l’inflazione percepita dai consumatori”, Rapporto trimestrale, gennaio.
By Istat:
2002, “Il comportamento dei prezzi nella fase di transizione dalla lira all’euro”, Rapporto annuale 2001.
2003, “Caratteristiche del processo inflazionistico nell’anno dell’introduzione dell’euro”.
2005, “Come si rilevano i prezzi al consumo”, in www.istat.it.
by Boeri, Brandolini
2004, “The age of discontent: Italian households at the beginning of the decade”, Giornale degli economisti e annali di economia
I hope they can be useful for you!
THANKS A LOT DAVIDE..THIS IS WHAT I NEEDED..AND THANKS TO THIS BLOG I HAVE NOT SPENT ANY TIME IN LOOKING AROUND THE WEB...
..GABRIELE YOU ARE PROBABLY RIGHT BUT WHEN YOU SPEAK WITH PEOPLE OR LOOK THE TV PROGRAMS IT REALLY SEEMS THAT PEOPLE SUFFERED BY DOUBLE PRICES (1 EURO= 1000 LIRE) AND NOT JUST 1 EURO= 2000 LIRE (which leads always to inflation but not so elevate as the perceived one..at least the perceived by me looking at people crying and wondering about their economic situation!!!)...
Yesterday I have seen Balllarò (a political tv program on Rai 3) and they were speaking (as usual...) about the continuing increase in prices of goods and services..and the connected problems of families to support this prices (they have shown some families' stories where they were not able to live comfortable with their incomes)..and the inflation rate is not so elevate as it was the impression given by this program!!
I perfecly know that a tv program is not representative of a population (but only of a share of the population), but I still believe that there is a problem which I am not able to solve in my mind: or the perception people has about increase in prices is totally distorted (and people likes wondering about life!!!)..or the inflation rate is computed in a bad way!!!
In any case I will read the papers suggested by Davide and I hope to change my mind!!
ciaoo
Domenico
Domenico, probably you are aware of it already, just in case you are not, Francesco Lippi is working on change-over and misperception. He has a paper on international central banking and I think also a book on that. His website is francescolippi.googlepages.com
From what I know, and it is not that much, many people working on that think that the price increase involved primarily the day-to-day goods (you buy them often but their weight in your bundle is not that high), leading consumers to overestimate the inflation rate. I don't know if I really believe in that, somebody does.
An alternative explanation could be that the changeover and a possible misperception about relative prices gave sellers a higher (temporary?) market power and they coordinate to reap the benefits.
Hope to have been useful.
Dear Stefano,
thanks for your comment..personally I really think that the truth lies in a middle point: consumers have partially overestimated the inflation rate but I also believe that "a possible misperception about relative prices gave sellers a higher (temporary?) market power and they coordinate to reap the benefits" (as you have said). I don't know which of the two mechanism has started the icrease in prices..but at some point this is not really important!!
In a sense, I would say that the "possible misperception about relative prices gave sellers" the possibility to tacitly collude: after the first seller starts to increase their prices, the others (the rivals) followed the behavior of this first seller, creating something like a chain!
Anyway I will look at Francesco Lippi homepage.
I really thank you for this reference!!
Bye and have a good Christmas
(hoping to see soon one post of you..!)
Domenico
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