IDEAS home Printed from https://ideas.repec.org/a/cem/jaecon/v11y2008n1p193-220.html
   My bibliography  Save this article

Computing and testing a stable common currency for Mercosur countries

Author

Abstract

This paper develops a stable common currency for mid-sized open monetary economies with incomplete markets in general and the Mercosur countries in particular. The proposed currency is constructed as a derivative of a dynamic portfolio of securities that proxies the nominal exchange risk factors for a set of monies and floats against the rest of the world’s currencies. We find that the resulting optimal common currency is comprised of currencies with country weights that are statistically significant and fairly symmetrical with relatively equal weight (e.g., 22% Argentinean pesos, 27% Brazilian reals, 27% Chilean pesos, and 23% Uruguayan pesos). We also find that increasing the number of countries in a common currency tends to increase its stability. The willingness of Mercosur countries to participate in a monetary union is assessed from statistical moments of the density functions of the implied stable common currency and its components.

Suggested Citation

  • Ariel M. Viale & James W. Kolari & Nikolai V. Hovanov & Mikhail V. Sokolov, 2008. "Computing and testing a stable common currency for Mercosur countries," Journal of Applied Economics, Universidad del CEMA, vol. 11, pages 193-220, May.
  • Handle: RePEc:cem:jaecon:v:11:y:2008:n:1:p:193-220
    as

    Download full text from publisher

    File URL: http://www4.cema.edu.ar/pjae/m/160VialeNikHovSok200805
    Download Restriction: Access to full text is restricted to subscribers. Individual articles may be purchased through PayPal.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Parry, Ian W H, 1998. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Journal of Regulatory Economics, Springer, vol. 14(3), pages 229-254, November.
    2. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    3. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
    4. Requate, Till, 1998. "Incentives to innovate under emission taxes and tradeable permits," European Journal of Political Economy, Elsevier, vol. 14(1), pages 139-165, February.
    5. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Pollution permits and environmental innovation," Journal of Public Economics, Elsevier, pages 127-140.
    6. James A. Brander & Barbara J. Spencer, 1983. "Strategic Commitment with R&D: The Symmetric Case," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 225-235, Spring.
    7. Biglaiser, Gary & Horowitz, John K, 1995. "Pollution Regulation and Incentives for Pollution-Control Research," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(4), pages 663-684, Winter.
    8. Gérard Gaudet & Stephen W. Salant, 1991. "Uniqueness of Cournot Equilibrium: New Results From Old Methods," Review of Economic Studies, Oxford University Press, pages 399-404.
    9. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    10. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    11. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, January.
    12. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
    13. Magat, Wesley A., 1978. "Pollution control and technological advance: A dynamic model of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 1-25, March.
    14. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
    15. Malueg, David A., 1989. "Emission credit trading and the incentive to adopt new pollution abatement technology," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 52-57, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011. "China’s new exchange rate regime, optimal basket currency and currency diversification," MPRA Paper 32642, University Library of Munich, Germany.

    More about this item

    Keywords

    stable common currency; open monetary economies; regime switching models; Mercosur; currency basket;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cem:jaecon:v:11:y:2008:n:1:p:193-220. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding). General contact details of provider: http://edirc.repec.org/data/cemaaar.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.