Competitiveness and Real Exchange Rates in the Eurozone: Has the Euro Fostered Price Convergence?

Competitiveness and Real Exchange Rates in the Eurozone: Has the Euro Fostered Price Convergence? | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Competitiveness and Real Exchange Rates in the Eurozone: Has the Euro Fostered Price Convergence? Poulakis Thanos, Kyrkilis Dimitrios This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8479849/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This paper critically examines the impact of the euro’s adoption on price convergence among the initial twelve Eurozone member states. Employing advanced econometric methods, it analyzes the stationarity of real exchange rates and the dynamics of price level convergence to evaluate whether the euro has facilitated the attainment of Purchasing Power Parity and convergence in international competitiveness within the Eurozone. While the euro was theoretically expected to reduce transaction costs and promote greater price alignment, empirical findings reveal notable inconsistencies in price convergence across the region. The loss of nominal exchange rate flexibility has hindered the realization of PPP, with divergent outcomes among member states. The results suggest that the Eurozone has not uniformly addressed disparities in price levels and competitiveness; instead, it may have functioned as an amplifier of pre-existing asymmetries. Furthermore, the study concludes that PPP is not universally valid, raising critical concerns about the theoretical assumptions and policy frameworks that rely on this principle. JEL CLASSIFICATION CODES C22, F31, F40 International Economics International Competitiveness Convergence Eurozone Purchasing Power Parity Nonlinear Analysis International Finance Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. 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