Impact of nominal shocks on the transmission of prices: the case of Euro introduction in the German food market.

摘要

The impact of the introduction of the Euro on the vertical price transmission in German food markets is analysed. It is hypothesized that following the introduction of the Euro, the presence of money illusion might have lead to higher real prices, and if so it is likely accompanied by higher margins between respective wholesale and retail prices. While other studies have mainly focused on the behaviour of average prices, the present study investigates actions at the individual store level. For lettuce and chicken, the vertical price relationships between retail and wholesale prices are estimated by employing an error correction approach, which is enhanced to test for structural breaks with a flexible time frame using an F-max approach. The results indicate significant changes in the vertical price relationships for one-fourth of the retailers under study. Though significant, the directions of changes do not uniquely fit the theoretical predictions for money illusion. Thus, the majority of German food retailers have not used the introduction of the Euro to increase their mark-ups..