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Monetary Integration in the Southern Cone: Mercosur Is Not Like the EU?

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Author Info

  • Ansgar Belke

    () (University of Hohenheim (Department of Economics), Stuttgart/Germany)

  • Daniel Gros

    () (Centre for European Policy Studies (CEPS), Brussels/Belgium)

Abstract

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. JEL classification: E42, F36, F42

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 72.

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Length: 88 pages
Date of creation: 19 Aug 2002
Date of revision:
Handle: RePEc:onb:oenbwp:72

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Related research

Keywords: currency union; exchange rate and interest rate variability; job creation; Mercosur; option value effects;

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Cited by:
  1. Belke, Ansgar & Gros, Daniel, 2002. "Monetary integration in the Southern Cone," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 323-349, December.
  2. 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.
  3. Eduard Hochreiter & Klaus Schmidt-Hebbel & Georg Winckler, 2002. "Monetary Union: European Lessons, Latin American Prospects," Working Papers Central Bank of Chile 167, Central Bank of Chile.
  4. Mejia-Reyes, P., 2004. "Classical Business Cycles in America: Are National Business Cycles Synchronised?," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(3), pages 75-102.
  5. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42 Bank for International Settlements.

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