Price expectations bias and non-neutrality of the currency as a unit of account. An experiment inspired by the supposed Lira - Euro double monetary standard.

Abstract

Money, as a unit of account, has been interpreted unanimously in economics as a neutral value yardstick, especially in case of fixed exchange rates. The experiment results (120 participants) show that during the transition from the Lira to the Euro (1999-2002) – despite all the information duly provided, as well as the economic expertise of the people involved – there has been a specific cognitive and affective inertia which has brought about a diffuse perception of a misleading double monetary standard (Lira/Euro) at work. As a result, we have thus tried to see whether prices expectations are affected by the unit of account chosen in the mental forecasting process. In point of fact, the experiment confirms this hypothesis and is actually consistent with other independent results. True enough, there are indeed a few differences but these are seminal as they suggest the relevance of attitudes underpinning the phenomena under scrutiny.

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