The impact of euro adoption on the Bulgarian economy

This paper provides an ex-ante assessment of the macroeconomic effects of euro adoption in Bulgaria, a post-communist EU member state with a long-standing currency board. Using an annual panel of European economies over 1995–2024, the analysis exploits the staggered timing of euro adoption across Central and Eastern Europe and applies difference-in-differences and event-study methods to estimate the effects of euro-area entry. The results indicate that euro adoption is associated with statistically and economically significant average improvements in income convergence and substantial reductions in sovereign borrowing costs, while effects on trade integration with the euro area are limited. Event-study estimates suggest that convergence gains materialise gradually following adoption, whereas improvements in sovereign financing conditions occur more rapidly. Overall, the findings suggest that the effects of euro adoption in hard-peg economies operate predominantly through financial and institutional channels, rather than through trade expansion or shifts in monetary policy.