A Cost-Benefit Analysis of a Monetary Union for MERCOSUR with Particular Emphasis on the Optimum Currency Area Theory?

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A Cost-Benefit Analysis of a Monetary Union for MERCOSUR with Particular Emphasis on the Optimum Currency Area Theory?

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Ralf Kronberger (Federal Austrian Economic Chamber)

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Ralf Kronberger

Abstract

Potential costs and benefits of a monetary union for the four MERCOSUR countries Argentina, Brazil, Paraguay and Uruguay are compared. Particular emphasis was put on the traditional and new approaches to optimum currency area theory which were reviewed and analyzed with respect to their validity for less developed economies. Based on these insights 7 theses have been developed and thereafter were tested empirically, as far as empirical material was available. Evidently MERCOSUR will not start negotiating a treaty on a MERCOSUR monetary union à la Maastricht tomorrow. The necessary institutional framework is de facto non-existent. Further the member countries have shown little willingness of monetary cooperation in the past. Nonetheless, the creation of a single MERCOSUR currency could serve as political lubricant for deepening integration. Such a deepening of the integration process could go hand in hand with sound and coordinated macroeconomic management which in turn could lead to more stability and increased credibility in the region.

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Paper provided by EconWPA in its series Macroeconomics with number 0407010.

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Length: 80 pages
Date of creation: 08 Jul 2004
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Handle: RePEc:wpa:wuwpma:0407010

Note: Type of Document - pdf; pages: 80
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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-07-11 (All new papers)
NEP-IFN-2004-07-11 (International Finance)
NEP-MAC-2004-07-11 (Macroeconomics)

Cited by:
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Foresti, Pasquale, 2007. "Is Latin America an Optimal Currency Area? Evidence from a Structural Vector Auto-regression analysis," MPRA Paper 2961, University Library of Munich, Germany, revised Apr 2008. [Downloadable!]

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