| Abstract [eng] |
Analysis of Price Changes After Introduction of the Euro in the Baltic States 80 pages, 8 charts, 16 pictures, 43 references and 7 annexes. The main purpose of this master thesis is to analyze the actual and perceived price changes and the reasons of their differences after euro introduction in the Baltic States. The work consists of three main parts; the analysis of literature, the research and its results, and conclusion. Literature analysis presents actual and perceived inflation indicators, and reviews other authors research about euro introduction impact on price changes in the Baltic States and other countries. Statistical analysis of actual and perceived inflation after euro introduction in the Baltic States has been conducted. Outcome of analysis revealed that actual inflation after euro introduction has not been significant in any of the Baltic countries. However, perceived inflation level in Estonia and Lithuania has reached crisis level when actual inflation was a few times higher. As a contrast, in Latvia perceived inflation level almost did not change. After the literature and statistical analysis, the author has carried out the research about the actual and perceived price changes after euro introduction in the Baltic States. Actual price changes were evaluated using difference-in-difference method where Baltic States (where euro was introduced) were treated as the target group and three chosen EU countries (Bulgaria, Croatia and Czechia; where euro has not been introduced yet) were treated as a comparison group. The purpose of using this econometric method was to evaluate the euro introduction impact on price changes comparing the observed results after the euro introduction with results which would have been if euro was not introduced in the target group. Linear regression models with actual inflation, average price levels and dummy euro introduction variables have been created. While analyzing perceived price changes after euro introduction in the Baltic States, statistical price transparency analysis was carried out, as well as econometric relation between perceived inflation and demographical variables (age, education) and income was evaluated by creating linear regression models with dummy euro introduction variables. The results of the research were statistically processed with EViews statistical package software. OLS method was used to estimate coefficients. The performed research revealed that prices of certain services (cultural, hairdressing salons and personal grooming establishments, restaurants, cafés and the like) have been increased the most in all Baltic countries during the first year after euro introduction. Generally, goods and services which prices have been increased belong to different price quantiles, therefore, perceived inflation after euro introduction cannot be explained by increased prices of cheaper goods and services. What is more, all Baltic countries has experienced big challenges with price transparency after euro introduction. It can also be noticed that perceived inflation after euro introduction has commonly increased more in middle age groups with higher education and income which are more likely to have a bigger extent and variety of expenses. The conclusions summarize the results of the performed research. The author believes that the results of the study could be useful not only as an analysis of historical and economic event outcomes or natural experiment to analyze economic behavior and pricing models. This study could also be useful to countries which have not adopted euro yet. While analyzing euro introduction outcomes in other countries, they could make decisions about preparation for joining euro zone and its impact on price changes. |
