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Macroeconomic Coordination and Monetary Unions in a N-country World: Do all Roads Lead to Rome?

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  • Federico Sturzenegger
  • Andrew Powell

Abstract

In Europe, twelve countries have joined a currency union but four have stayed out. The EU enlargement process implies a large set of potential EMU entrants. In Latin America, two countries have recently dollarized and regional currencies have also been a recurring theme. We develop a theoretical model in which countries are exposed to real and monetary shocks of both a systemic and individual nature. The model suggests when countries should float, form a CU or fix to an anchor as a function of their sensitivity to systemic shocks and the size of individual shocks. In an empirical analysis we consider a set of countries in Latin America. We find that what is beneficial for a given country depends on the actions of others. Integration may then be path dependent, and all roads may not lead to Rome.

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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-142002.pdf
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Bibliographic Info

Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number dieciocho.

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Length: 25 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:udt:wpbsdt:dieciocho

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  1. Barry J. Eichengreen & Tamim Bayoumi, 1993. "Monetary and Exchange Rate Arrangements for Nafta," IMF Working Papers 93/20, International Monetary Fund.
  2. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  3. Tamim Bayoumi, 1994. "A Formal Model of Optimum Currency Areas," IMF Working Papers 94/42, International Monetary Fund.
  4. Charles R. Bean, 1992. "Economic and Monetary Union in Europe," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 31-52, Fall.
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