Is the Euro Really a ‘Teuro’? Effects of Introducing the Euro on Prices of Everyday Non-Tradables in Slovakia

Abstract

This paper looks at the Slovak experience with euro adoption from the point of view of perceived versus actual inflation and with a focus on a specific set of non-tradable prices. It examines whether Slovak consumers experienced or perceived (or both) an unusual price jump at the time of euro adoption and the possible explanations for such a phenomenon.

Comparing the Slovak experience with the creation of the eurozone, and also with adoption of the single currency in Cyprus, Malta and Slovenia, we find that in terms of both reality and perceptions of general price movements every adoption is different. For Slovakia, euro adoption came at a time of disinflation, which consumers actually experienced, so there does not seem to be any overall perception that it is a ‘teuro’ (from teuer, meaning ‘expensive’ in German). We can nonetheless observe high inflation for non-tradables at both the macro and micro levels, linked not only to the Slovak strategy of nominal currency appreciation prior to eurozone entry but also to the changeover itself.