Monetary Unions, External Shocks and Economic Performance
AbstractDuring 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.
Download InfoIf 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.
Bibliographic InfoPaper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 126.
Date of creation: 05 Jun 2006
Date of revision:
Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-24 (All new papers)
- NEP-CBA-2006-06-24 (Central Banking)
- NEP-FMK-2006-06-24 (Financial Markets)
- NEP-IFN-2006-06-24 (International Finance)
- NEP-MAC-2006-06-24 (Macroeconomics)
- NEP-MON-2006-06-24 (Monetary Economics)
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.:
- Tamim Bayoumi, 1994.
"A Formal Model of Optimum Currency Areas,"
IMF Working Papers
94/42, International Monetary Fund.
- Campa, Jose M. & Gavilán, Angel, 2006.
"Current accounts in the euro area: An intertemporal approach,"
IESE Research Papers
D/651, IESE Business School.
- José M. Campa & Ángel Gavilán, 2006. "Current accounts in the euro area: An intertemporal approach," Banco de Espaï¿½a Working Papers 0638, Banco de Espa�a.
- 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.
- Jean-Pierre Allegret & Alain Sand-Zantman, 2007.
"Disentangling business cycles and macroeconomic policy in Mercosur: a VAR and unobserved components model approaches,"
- Jean-Pierre Allegret & Alain Sand-Zantman, 2006. "Disentangling business cycles and macroeconomic policy in Mercosur: a VAR and unobserved components model approaches," Post-Print halshs-00134317, HAL.
- 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).
- John Williamson, 2006.
"A Worldwide System of Reference Rates,"
130, Oesterreichische Nationalbank (Austrian Central Bank).
- George Tavlas & Harris Dellas & Alan Stockman, 2008.
"The Classification and Perfomance of Alternative Exchange-Rate Systems,"
90, Bank of Greece.
- Tavlas, George & Dellas, Harris & Stockman, Alan C., 2008. "The classification and performance of alternative exchange-rate systems," European Economic Review, Elsevier, vol. 52(6), pages 941-963, August.
- 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.
- 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.
- Agenor, Pierre-Richard & Aizenman, Joshua, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," Santa Cruz Department of Economics, Working Paper Series qt7668j94x, Department of Economics, UC Santa Cruz.
- 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, vol. 0(3), pages 71-82, September.
- 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.
- 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, vol. 50(2), pages 249-273.
- Katrin Elborgh-Woytek & Julian Berengaut, 2006. "Beauty Queens and Wallflowers," IMF Working Papers 06/226, International Monetary Fund.
- 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. - WÃ¼rzburg Economic Papers 85, University of Würzburg, Chair for Monetary Policy and International Economics.
- Levan Efremidze & Samuel M. Schreyer & Ozan Sula, 2011. "Sudden stops and currency crises," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(4), pages 304-321, November.
- Barbara Pfeffer, 2008. "Do regional Trade and Specialization drive intra-regional Risk-Sharing?," MAGKS Papers on Economics 200813, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Knell and Helmut Stix).
If references are entirely missing, you can add them using this form.