Advanced Search
MyIDEAS: Login to save this article or follow this journal

Monetary unions, external shocks and economic performance: A Latin American perspective

Contents:

Author Info

  • Sebastian Edwards

    ()

Abstract

During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union does not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks are amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1007/s10368-006-0056-2
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 3 (2006)
Issue (Month): 3 (December)
Pages: 225-247

as in new window
Handle: RePEc:kap:iecepo:v:3:y:2006:i:3:p:225-247

Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=111059

Related research

Keywords: Monetary union; Business cycle; Multi nation currency;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers, Center for International Development at Harvard University 42, Center for International Development at Harvard University.
  2. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, Elsevier, vol. 41(3-4), pages 351-366, November.
  3. Sebastian Edwards, 2001. "Does the Current Account Matter?," NBER Working Papers 8275, National Bureau of Economic Research, Inc.
  4. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, 01.
  5. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 386-390, May.
  6. Eduardo A. Cavallo & Jeffrey Frankel, 2007. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality," Research Department Publications, Inter-American Development Bank, Research Department 4544, Inter-American Development Bank, Research Department.
  7. Sebastian Edwards & I. Igal Magendzo, 2003. "Strict Dollarization and Economic Performance: An Empirical Investigation," NBER Working Papers 9820, National Bureau of Economic Research, Inc.
  8. Tavlas, G.S., 1991. "On the International Use of Currencies: the Case of the Deutsche Mark," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 181, International Economics Section, Departement of Economics Princeton University,.
  9. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc.
  10. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals, and Sudden Stops," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 1-49, June.
  11. Sebastian Edwards & Eduardo Levy Yeyati, 2003. "Flexible Exchange Rates as Shock Absorbers," NBER Working Papers 9867, National Bureau of Economic Research, Inc.
  12. Tamim Bayoumi, 1994. "A Formal Model of Optimum Currency Areas," IMF Working Papers 94/42, International Monetary Fund.
  13. Andrew Berg & Paolo Mauro & Eduardo Borensztein, 2002. "An Evaluation of Monetary Regime Options for Latin America," IMF Working Papers 02/211, International Monetary Fund.
  14. Larrain Felipe & Jose Tavares, 2003. "Regional Currencies Versus Dollarization: Options for Asia and the Americas," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 6(1), pages 35-49.
  15. George S. Tavlas, 2009. "Optimum-Currency-Area Paradoxes," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 536-551, 08.
  16. Belke, Ansgar & Gros, Daniel, 2002. "Monetary integration in the Southern Cone," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 13(3), pages 323-349, December.
  17. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  18. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1921, C.E.P.R. Discussion Papers.
  19. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  20. Eduard Hochreiter & Klaus Schmidt-Hebbel & Georg Winckler, 2002. "Monetary Union: European Lessons, Latin American Prospects," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 68, Oesterreichische Nationalbank (Austrian Central Bank).
  21. Barry Eichengreen., 1998. "Does Mercosur Need a Single Currency?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C98-103, University of California at Berkeley.
  22. Frankel, Jeffrey & Rose, Andrew K., 2001. "An Estimate of the Effect of Common Currencies on Trade and Income," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp01-013, Harvard University, John F. Kennedy School of Government.
  23. Andrew K. Rose & Charles Engel, 2000. "Currency Unions and International Integration," NBER Working Papers 7872, National Bureau of Economic Research, Inc.
  24. Kopits, George, 2002. "Central European EU accession and Latin American integration: Mutual lessons in macroeconomic policy design," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 13(3), pages 253-277, December.
  25. Rudi Dornbusch, 2001. "Fewer Monies, Better Monies," NBER Working Papers 8324, National Bureau of Economic Research, Inc.
  26. Mongelli, Francesco Paolo, 2002. ""New" views on the optimum currency area theory: what is EMU telling us?," Working Paper Series, European Central Bank 0138, European Central Bank.
  27. George Kopits, 2002. "Central European EU Accession and Latin American Integration: Mutual Lessons in Macro-Economic Policy Design," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 75, Oesterreichische Nationalbank (Austrian Central Bank).
  28. Hochreiter, Eduard & Siklos, Pierre L., 2002. "Alternative exchange-rate regimes: The options for Latin America," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 13(3), pages 195-211, December.
  29. Sebastian Edwards, 1999. "The Choice of Exchange Rate Regime in Developing and Middle Income Countries," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 9-28 National Bureau of Economic Research, Inc.
  30. Sebastian Edwards & Igal Magendzo, 2003. "A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions," NBER Working Papers 9514, National Bureau of Economic Research, Inc.
  31. Guillermo A. Calvo & Ernesto Talvi, 2005. "Sudden Stop, Financial Factors and Economic Collpase in Latin America: Learning from Argentina and Chile," NBER Working Papers 11153, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. John Williamson, 2006. "A Worldwide System of Reference Rates," Working Papers, Bank of Greece 45, Bank of Greece.
  2. Katrin Elborgh-Woytek & Julian Berengaut, 2006. "Beauty Queens and Wallflowers," IMF Working Papers 06/226, International Monetary Fund.
  3. José M. Campa & Ángel Gavilán, 2006. "Current accounts in the euro area: An intertemporal approach," Banco de Espa�a Working Papers 0638, Banco de Espa�a.
  4. Barbara Pfeffer, 2008. "Do regional Trade and Specialization drive intra-regional Risk-Sharing?," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200813, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. David G. Mayes & Vesa Korhonen, 2006. "The CIS: Does the Regional Hegemony Facilitate Monetary Integration?," Economie Internationale, CEPII research center, CEPII research center, issue 107, pages 173-196.
  6. Omotor, Douglason G. & Niringiye, Aggrey, 2011. "Optimum Currency Area and Shock Asymmetry: A Dynamic Analysis of the West African Monetary Zone (WAMZ)," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 71-82, September.
  7. Levan Efremidze & Samuel M. Schreyer & Ozan Sula, 2011. "Sudden stops and currency crises," Journal of Financial Economic Policy, Emerald Group Publishing, Emerald Group Publishing, vol. 3(4), pages 304-321, November.
  8. Jean-Pierre Allegret & Alain Sand-Zantman, 2009. "Does a Monetary Union protect again shocks? An assessment of Latin American integration," Post-Print halshs-00371069, HAL.
  9. Jean-Pierre Allegret & Alain Sand-Zantman, 2007. "Disentangling business cycles and macroeconomic policy in Mercosur: a VAR and unobserved components model approaches," Post-Print halshs-00238495, HAL.
  10. Campa, Jose Manuel & Gavilan, Angel, 2011. "Current accounts in the euro area: An intertemporal approach," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(1), pages 205-228, February.
  11. Tavlas, George & Dellas, Harris & Stockman, Alan C., 2008. "The classification and performance of alternative exchange-rate systems," European Economic Review, Elsevier, Elsevier, vol. 52(6), pages 941-963, August.
  12. Céline Gimet, 2007. "Le projet d'Union Monétaire dans le Mercosur :Etude de la position actuelle dans les pays par rapport à une carte de critères de soutenabilité," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, ULB -- Universite Libre de Bruxelles, vol. 50(2), pages 249-273.
  13. Pierre-Richard Agenor & Joshua Aizenman, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," NBER Working Papers 14088, National Bureau of Economic Research, Inc.
  14. Garcia Rocabado, Daniel, 2010. "The road to monetary union in Latin America: An EMS-type fixed exchange rate system as an intermediate step," W.E.P. - Würzburg Economic Papers 85, University of Würzburg, Chair for Monetary Policy and International Economics.
  15. Slavov, Slavi T., 2009. "Do common currencies facilitate the net flow of capital among countries?," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 20(2), pages 124-144, August.
  16. Cohen, Joseph N., 2008. "Managing the Faustian bargain: monetary autonomy in the pursuit of development in Eastern Europe and Latin America," MPRA Paper 22435, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kap:iecepo:v:3:y:2006:i:3:p:225-247. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.