Ansgar Belke () (University of Hohenheim (Department of Economics), Stuttgart/Germany) Daniel Gros () (Centre for European Policy Studies (CEPS), Brussels/Belgium)
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Evaluating the costs and benefits of exchange rate stability requires a somewhat different approach for Mercosur than for the EU. EU member countries are highly integrated in terms of trade in goods and services. By contrast, trade integration within Mercosur is much more limited, intra-area exchange rates are thus less important than the exchange rate vis-a-vis the dollar and the euro. This contribution analyses the impact of both aspects of financial volatility (exchange rate and interest rate volatility) on investment and labour markets in the Southern Cone, finding that both exchange rate variability (mainly against the dollar and the euro) and (domestic) interest rate volatility have a significant dampening impact on employment and investment, as predicted by our theoretical model. Classification-JEL: E42, F36, F42
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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number
72.
Length: 88 pages Date of creation: 19 Aug 2002 Date of revision: Handle: RePEc:onb:oenbwp:72
Note: The paper includes comments by Luís de Campos e Cunha, Nuno Alves and Eduardo Levy-Yeyati. Contact details of provider: Postal: P.O. Box 61, A-1011 Vienna, Austria Phone: +43/1/404 20 7205 Fax: +43/1/404 20 7299 Email: Web page: http://www.oenb.at/ More information through EDIRC
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