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Common currency and economic integration in Mercosul

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  • Luiz Carlos Bresser-Pereira
  • Marcio Holland

Abstract

Latin America has a long history of attempts to achieve regional integration, yet success has been modest. This paper contends that this is essentially due not so much to protectionist practices in the various countries, but to the lack of a common currency or, at least, of a tightly managed exchange rate band. We reviewed the optimum currency area criteria that indicate it is prudent to increase economic integration before attempting to establish exchange rates coordination. It seems fair to say that diminishing exchange rate instability could encourage trade and investment flows across Latin American economies. We also performed a very simplified exercise to understand how feasible efforts would be between policymakers in two large economies (Brazil and Argentina) to achieve exchange rate parity stability and step toward adopting a common currency.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 32 (2009)
Issue (Month): 2 (December)
Pages: 213-234

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Handle: RePEc:mes:postke:v:32:y:2009:i:2:p:213-234

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: common currency; exchange rate; Mercosul (Southern Cone Common Market);

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References

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  1. Pereira, Luiz Carlos Bresser, 2008. "Crises financeira nos anos 1990 e poupança externa," Textos para discussão 172, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  2. Pereira, Luiz Carlos Bresser, 2004. "Exchange Rate: Fix, Float, or Manage It?," Textos para discussão 135, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  3. Andrew Berg & Eduardo Borensztein & Paolo Mauro, 2002. "An Evalution of Monetary Regime Options for Latin America," Working Papers 67, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
  5. Alberto Alesina & Robert J. Barro, 2000. "Currency Unions," NBER Working Papers 7927, National Bureau of Economic Research, Inc.
  6. Eduard Hochreiter & Klaus Schmidt-Hebbel & Georg Winckler, 2002. "Monetary Union: European Lessons, Latin American Prospects," Working Papers 68, Oesterreichische Nationalbank (Austrian Central Bank).
  7. Agénor, Pierre-Richard & Aizenman, Joshua, 2011. "Capital market imperfections and the theory of optimum currency areas," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1659-1675.
  8. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc.
  9. Rose, Andrew K, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," CEPR Discussion Papers 2329, C.E.P.R. Discussion Papers.
  10. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  11. Larrain Felipe & Jose Tavares, 2003. "Regional Currencies Versus Dollarization: Options for Asia and the Americas," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(1), pages 35-49.
  12. Luiz Carlos Bresser-Pereira & Paulo Gala, 2008. "Foreign savings, insufficiency of demand, and low growth," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(3), pages 315-334, April.
  13. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
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