The price effects of joining the Euro: Modelling the Greek experience using non-linear price-adjustment models

Abstract

We test the widely-held hypothesis that accession to the EMU has caused a structural increase in Greek consumer prices. We find no econometric evidence of such an effect. We also find strong evidence of (a) multiple structural breaks in the process driving Greek equilibrium consumer prices and (b) non-linear price adjustment. Our findings explain the post-EMU accession acceleration in Greek prices as normal, equilibrium-restoring behaviour. They also have important policy implications for the countries planning to join the Euro in the foreseeable future.