EFFECTS OF THE EURO CHANGEOVER ON THE INFLATION IN BALTIC STATES

The euro is the official currency of the European Union (EU). All member states excluding Denmark have committed to adopt the euro once they fulfil the necessary conditions, but no timetable is prescribed. Currently 19 of 28 member states use the euro, with Lithuania being the last country that adopted Euro in 2015. Bulgaria, Romania and Croatia aim to become the Eurozone member within several years, while Czech Republic, Hungary and Poland are just considering this possibility. The benefits of euro include stable prices, a more transparent and competitive market, more international trade, lower travel costs, and better access to capital. Residents of any country that has so far adopted the euro were afraid of price increases after the adoption of the euro. In the EU member states that have not adopted the common currency yet, almost two thirds of respondents think that introducing the euro will increase prices in their country. This paper analyses the inflationary changeover effect in Baltic states. The analysis is based on the consumer price indices (CPI) by COICOP divisions. The difference-in-differences method is used where the treated group is Estonia, Latvia and Lithuania, and the control group consists of selected EU member states. Our calculations show that the euro has either insignificant or small effect on consumer prices in evaluated countries.