What happens to prices when a country joins a currency union, and do prices behave differently in a pegged exchange rate regime? This column sheds lights on these questions by using evidence from Latvia, whose currency was pegged to the euro before the country became a Eurozone member on 1 January 2014. The authors find that clothing retail prices in Latvia completely converged to those in other Eurozone countries.
Alberto Cavallo, Brent Neiman, Roberto Rigobon, 22 August 2014
Olivier Blanchard, 15 June 2012
Latvia was severely hit by the Global Crisis yet its adjustment has been remarkable. Four years after the hit it has one of the highest growth rates in Europe, its euro-peg has held, and the fiscal and current accounts are close to balance. This column outlines seven reasons why its adjustment has worked so well. It warns however that the lessons are not easily exportable.
Thorvaldur Gylfason, Eduard Hochreiter, 08 December 2010
Croatia and Latvia both gained independence in the early 1990s. This column tracks their progress since. It shows that the two are growing but at different rates and with varying cycles. It argues that investment in human capital, good governance, and institutional reform have been vital for development and while Latvia is catching up, Croatia remains the more efficient and wealthier of the two.
Eduardo Levy Yeyati, 22 June 2009
Latvia has been hard hit by the global crisis and faces an unsustainable currency peg. Should the country float its currency, adopt the euro, or try a contained devaluation? This column assesses the options and says that the latter is most realistic, in that it will address the concerns of the EU, IMF, and Latvia.