Pricing to market and Eurozone membership: Evidence from Latvia

Alberto Cavallo, Brent Neiman, Roberto Rigobon 22 August 2014

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What happens to prices when a country joins a currency union? And do prices behave differently in pegged exchange rate regimes compared to common currency areas? The answer to this question is a critical input to a country’s choice of currency regime.

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Topics:  Europe's nations and regions

Tags:  eurozone, Latvia, pricing, currency membership

Lessons from Latvia

Olivier Blanchard 15 June 2012

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In 2008 Latvia was widely seen as an economic basket case, a textbook example of a boom turned to bust.

From 2005 to 2007 average annual growth had exceeded 10% and the current-account deficit had increased to more than 20% of GDP. By early 2008 however, the boom had come to an end and, by the end of 2008, output was down by 10% from its peak, the fiscal deficit was shooting up, capital was leaving the country, and reserves were rapidly decreasing.

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Topics:  Macroeconomic policy

Tags:  IMF, global crisis, Latvia

Growing together: Croatia and Latvia

Thorvaldur Gylfason, Eduard Hochreiter 08 December 2010

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Croatia and Latvia regained independence in the early 1990s. While Latvia could promptly start adjusting its policies to prepare for its integration into the EU (and NATO), Croatia suffered a bloody war of independence that, including its political aftermath, set its EU ambitions back by about a decade. Latvia used its time well and pursued radical reform policies that led to EU accession in 2004. After nearly five years of war, Croatia opted for more cautious, gradual reforms, and opening up.

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Topics:  Development Europe's nations and regions

Tags:  Eastern Europe, Latvia, Croatia

Is Latvia the new Argentina?

Eduardo Levy Yeyati 22 June 2009

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The strategy of engineering an “internal” depreciation under a peg in Latvia (via contractionary fiscal policy, wage cuts and price deflation) implicit in the IMF program (IMF 2009) is proving too painful, if not self-defeating as in the 2001 collapse of Argentina’s currency board (De La Torre et al 2003). While the economy (and the fiscal accounts) worsened more than expected, nominal depreciation in most trading partners led the Lat real effective exchange rate to appreciate 6% in the first quarter of 2009.

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Topics:  Europe's nations and regions

Tags:  currency crisis, Latvia, euroisation

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