Gainers and losers of euro adoption: the case of the Baltic states

Abstract

In this paper we analyse the effects of the adoption of euro on the economies of the three Baltic countries. We employ the difference-in-differences approach to estimate the impact of the currency changeover on the product prices in the Baltic states. We also examine which specific demographic groups of consumers (by their age, education and income levels) were the most sensitive for the currency changeover. Our results suggest that the greatest euro-related price increase in the Baltic countries was related to the products belonging to the 4th and the 5th price quantiles, especially services. We also find that in the Baltic countries consumers groups which reacted to the adoption of euro the most sensitively were better educated people between 30 and 49 years. However, the impact of currency changeover for the consumers seems to be country specific.