Currency numerosity effects in Estonia

Currency used to be a symbol of each country, but in recent years there have been many changes in relation to common currency adoption. Studies have shown that people spend differently in currencies with different numeric value, even if the real value of goods and services is the same. The aim of this work is to investigate whether currency numerosity effects are present among the consumers in Estonia and what kind of implications these effects may have on the economy after euro adoption when the prices decrease by a factor of 15.6466. The used methodology includes two experiments which test the difference assessment account theory and interviews which give more insight to individual consumer perceptions. The authors find that, most likely, people in Estonia claim to spend more in euros because they perceive prices in smaller denomination as more affordable but the money illusion effect will not last long. This work should be of use to everybody who is interested in differential consumer spending behaviour in different currencies, both in temporary (travel) and permanent (currency changeover) settings.

Autorentext

Mirjam Malahhov, Ivika Jäger: Hold BSc degree in Economics and Business Administration from the Stockholm School of Economics in Riga. Currently obtaining MSc of Business and Economics in the Finance specialisation at the Stockholm School of Economics.