Psychological costs of currency transition: Evidence from the euro adoption

Research output: Contribution to journalArticle

Abstract

This paper assesses the perceived individual psychological costs of adhering to the Euro. We use the difference-in-differences approach (DD), comparing individual levels of satisfaction with the economy in Slovakia immediately before and after the introduction of the Euro, with similar individuals in neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and display similar macroeconomic behavior before and after the currency change in Slovakia. What we assess is not the actual, economic, costs stemming from the Euro adoption, but the change in utility as perceived by the individuals. There is evidence of substantial psychological costs associated with currency transition, especially for the old, the unemployed, the poorly educated and households with children. Our results are robust to the use of alternative control groups and to estimation procedures using the DD matching approach. The significant perceived costs uncovered in this paper suggest policy-makers should not ignore them when considering a sweeping economic change such as the adoption of a new currency. © 2016 Elsevier B.V.
Original languageEnglish
Pages (from-to)89-100
JournalEuropean Journal Of Political Economy
Volume45
DOIs
Publication statusPublished - 1 Dec 2016

Keywords

  • Currency changeover
  • Euro introduction
  • Slovakia
  • Subjective well-being
  • The Czech Republic

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