Price dispersion and the euro: Micro heterogeneity and macro implications

Abstract

What is the impact of monetary unions on the integration of goods markets? We address this issue by investigating the effect of the euro on French exporters' pricing strategies toward members of the eurozone. We adopt a difference-in-difference strategy and estimate that the single currency reduced the relative dispersion of export prices in the eurozone by 1 percentage point in comparison to the rest of the European Union. Moreover, we show that the single currency has affected large firms more strongly. When we take this heterogeneity into account, we find a stronger impact for the euro, by 4 percentage points.