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Inflation perceived by consumers in the Eurozone and proxy exchange rates against euro

D'Elia, Enrico (2003): Inflation perceived by consumers in the Eurozone and proxy exchange rates against euro.

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Abstract

During 2002, the discrepancy between the official inflation rate and that perceived by consumers picked up to an all time record in the Eurozone. A measure of this misperception is provided by the results of the monthly qualitative consumer surveys carried out by the European Commission. Of course, many reasons may explain the misperception by part of consumers. Here the latter is related to the fact that almost everybody in Eurozone still tends to evaluate prices by using former national currencies and, what is more, adopts proxy exchange rates against euro instead of the official ones, that are computationally too demanding. By accident, in almost every Eurozone countries the use of a feasible proxy of exchange rate against euro implies some overestimation of price changes between 2001 and 2002 (1.4% on average in the Eurozone). The impact of this effect is confirmed by the evidence that in most countries inflation misperception is positively related to the discrepancy between proxy and official conversion rates of euro against the former national currencies.

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