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Does a Monetary Union protect again foreign shocks? An assessment of Latin American integration using a Bayesian VAR

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  • Jean-Pierre Allegret

    ()
    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Alain Sand-Zantman

    ()
    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

This paper analyses the monetary consequences of the Latin-American trade integration process. We consider a sample of five countries –Argentina, Brazil, Chile, Mexico and Uruguay- spanning the period 1991-2007. The main question raised pertains to the feasibility of a monetary union between L.A. economies. To this end, we study whether this set of countries is characterized by business cycle synchronization with the occurrence of common shocks, a strong similarity in the adjustment process and the convergence of policy responses. We focus especially our attention on two points. First, we try to determine to what extent international disturbances influence the domestic business cycles through trade and/or financial channels. Second, we analyze the impact of the adoption of different exchange rate regimes on the countries' responses to shocks. All these features are the main issues in the literature relative to regional integration and OCA process.

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Paper provided by HAL in its series Post-Print with number halshs-00269122.

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Date of creation: 2008
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Handle: RePEc:hal:journl:halshs-00269122

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Keywords: bayesian VAR ; business cycles ; Latin American countries ; optimum currency area;

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  1. Jean-Pierre Allegret & Alain Sand-Zantman, 2006. "Disentangling business cycles and macroeconomic policy in Mercosur: a VAR and unobserved components model approaches," Documents de Travail de l'OFCE 2006-15, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," IDB Publications 6703, Inter-American Development Bank.
  3. 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.
  4. Martin Uribe & Vivian Z. Yue, 2003. "Country Spreads and Emerging Countries: Who Drives Whom?," NBER Working Papers 10018, National Bureau of Economic Research, Inc.
  5. Vogelsang, T.J. & Perron, P., 1994. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," Cahiers de recherche 9422, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers.
  7. P&aauml;r �sterholm & Jeromin Zettelmeyer, 2008. "The Effect of External Conditions on Growth in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 595-623, December.
  8. Mariam Camarero & Renato G. Flôres, Jr. & Cecilio R. Tamarit, 2003. "Monetary Union and productivity differences in Mercosur countries," Working Papers 03-04, Asociación Española de Economía y Finanzas Internacionales.
  9. Bartosz Mackowiak, 2006. "External Shocks, U.S. Monetary Policy and Macroeconomic Fluctuations in Emerging Markets," SFB 649 Discussion Papers SFB649DP2006-026, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Aiolfi, Marco & Catão, Luis A.V. & Timmermann, Allan, 2011. "Common factors in Latin America's business cycles," Journal of Development Economics, Elsevier, vol. 95(2), pages 212-228, July.
  11. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," IDB Publications 6516, Inter-American Development Bank.
  12. Eichengreen, Barry & Taylor, Alan M, 2003. "The Monetary Consequences of A Free Trade Area of the Americas," CEPR Discussion Papers 3909, C.E.P.R. Discussion Papers.
  13. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  14. Robert B. Litterman, 1984. "The costs of intermediate targeting," Working Papers 254, Federal Reserve Bank of Minneapolis.
  15. Rose, Andrew K, 2006. "A Stable International Monetary System Emerges: Bretton Woods, Reversed," CEPR Discussion Papers 5854, C.E.P.R. Discussion Papers.
  16. Hallwood, Paul & Marsh, Ian W. & Scheibe, Jorg, 2006. "An assessment of the case for monetary union or official dollarization in five Latin American countries," Emerging Markets Review, Elsevier, vol. 7(1), pages 52-66, March.
  17. Salvatore, Dominick, 2001. "Which countries in the Americas should dollarize?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 347-355, April.
  18. Corbo, Vittorio, 2001. "Is it time for a common currency for the Americas?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 241-248, April.
  19. Robert B. Litterman, 1979. "Techniques of forecasting using vector autoregressions," Working Papers 115, Federal Reserve Bank of Minneapolis.
  20. Ahmed, Shaghil, 2003. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," Journal of Development Economics, Elsevier, vol. 72(1), pages 181-202, October.
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