Maastricht treaty, euro and purchasing power parity Academic Article uri icon


  • This paper examines the validity of the purchasing power parity (PPP) condition in EMU countries during three distinct exchange rate regimes (floating-rate, target-zone arrangement, and fixed-rate or common currency) from January 1973 through March 2005. Our results support PPP. PPP worsens during the common currency regime both within the euro currency bloc and between currency blocs. However, faster mean reversion observed in the few EMU countries where PPP holds may signal higher market efficiency and economic integration in the future. Besides, PPP improves after the Maastricht Treaty's enforcement, affirming the importance of fiscal and monetary convergence in enhancing market integration. EuroJournals Publishing, Inc. 2010.

published proceedings

  • International Research Journal of Finance and Economics

author list (cited authors)

  • Chen, N., & Mahajan, A.

complete list of authors

  • Chen, N||Mahajan, A

publication date

  • January 2010