Cavallo, A., Neiman, B., & Rigobon, R. (2015) "The Price Impact of Joining a Currency Union: Evidence from Latvia" - IMF Economic Review, Vol. 63(2), p. 281-297.

The answer to this question is critical for thinking about the implications of joining (or exiting) a common currency area. This paper is the first to use high-frequency good-level data to provide evidence that the answer is yes, at least for an important subset of consumption goods.

We consider the case of Latvia, which recently dropped its pegged exchange rate and joined the euro zone. We analyze the prices of thousands of differentiated goods sold by Zara, the world's largest clothing retailer. Price dispersion between Latvia and euro zone countries collapsed swiftly following entry to the euro.