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Is Latin America an Optimal Currency Area? Evidence from a Structural Vector Auto-regression analysis

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Foresti, Pasquale

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Abstract

This paper evaluates the advisability of a monetary union in Latin America applying the theory of optimum currency areas (OCA). The analysis, based on the traditional OCA criteria, suggests that there is no evidence for any monetary integration in Latin America, even at a sub-regional level. Latin American countries have evidenced a low degree of trade integration and asymmetric co-movements among their shocks. Moreover, important differences in the speed of adjustment and size of shocks are found. Higher policy coordination seems to be necessary before starting any economic integration process in Latin America.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2961.

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Date of creation: Aug 2007
Date of revision: Apr 2008
Handle: RePEc:pra:mprapa:2961

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C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
F0 - International Economics - - General

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References listed on IDEAS
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  1. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 409-436, May. [Downloadable!] (restricted)
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  2. Zhaoyong Zhang & Kiyotaka Sato & Michael McAleer, 2003. "Asian Monetary Integration: A Structural VAR Approach," CIRJE F-Series CIRJE-F-212, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  3. Francesco Saraceno, 2005. "Demand Shocks and Intertemporal Coordination: A Two Country Model," The Icfai Journal of Monetary Economics, Icfai Press, vol. 0(2), pages 51 - 75, May.
  4. FELIPE LARRAÍN B. & JOSÉ TAVARES, 2003. "Regional Currencies Versus Dollarization: Options for Asia and the Americas," Journal of Policy Reform, Taylor and Francis Journals, vol. 6(1), pages 35-49, March. [Downloadable!] (restricted)
  5. M.J. Artis, 2003. "Reflections on the optimal currency area (OCA) criteria in the light of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 297-307. [Downloadable!]
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  6. Ralf Kronberger, 2004. "A Cost-Benefit Analysis of a Monetary Union for MERCOSUR with Particular Emphasis on the Optimum Currency Area Theory?," Macroeconomics 0407010, EconWPA. [Downloadable!]
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