Discussion Paper Details

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Title: Psychological Costs of Currency Transition: Evidence from Euro Adoption

Author(s): Vladimir Otrachshenko, Olga Popova and Josť Tavares

Publication Date: January 2016

Keyword(s): currency transition, Czech Republic, euro, Slovakia and subjective well-being

Programme Area(s): International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: We analyze individual levels of life satisfaction in Slovakia, after that country adopted the Euro, following a spirited debate. We gauge the psychological cost of transition to the new currency by comparing individual life satisfaction, not only before and after Euro introduction, but by comparison with individuals with similar characteristics in the neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and share similar macroeconomic indicators just before the currency change in Slovakia. We find evidence of substantial psychological costs of currency transition, which are especially important for the old, the unemployed, those with low education and in households with children. We believe these results suggest the importance of information and enlightened debate before a sweeping change in economic context such as the adoption of a new currency.

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Bibliographic Reference

Otrachshenko, V, Popova, O and Tavares, J. 2016. 'Psychological Costs of Currency Transition: Evidence from Euro Adoption'. London, Centre for Economic Policy Research.