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Mexico versus Canada: Stability Benefits from Making Common Currency with USD?

  • George M. von Furstenberg

    (Indiana University)

Using a de facto classification of exchange-rate regimes, this paper investigates how the volatility of PPP-GDP per person and per hour of work is associated with such regimes in Mexico and in Canada. It finds that, for Mexico unlike Canada, the macroeconomic volatility left is much greater during periods when the nominal exchange rate with USD changes appreciably than when it is quasi-pegged. However, Mexico cannot safely peg to USD except through formal US-dollarization. Hence this finding suggests that the stability benefits of monetary union are greatest for emerging-market countries inside an economically integrating region and non-existent for financially highly advanced countries.

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File URL: http://jefsite.org/RePEc/pep/journl/jef-2005-10-2-b-furstenberg.pdf
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Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.

Volume (Year): 10 (2005)
Issue (Month): 2 (Summer)
Pages: 15-37

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Handle: RePEc:pep:journl:v:10:y:2005:i:2:p:15-37
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Web page: http://bschool.pepperdine.edu/jef

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  1. von Furstenberg, George M. & Teolis, David P., 1993. "Growth and income distribution benefits of north american monetary union for Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 4(1), pages 127-143.
  2. Dean, James W., 2001. "Should Latin America's common law marriages to the US dollar be legalized? Should Canada's?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 291-300, April.
  3. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  4. Charles Engel, 2000. "Optimal Exchange Rate Policy:The Influence of Price-Setting and Asset Markets," Working Papers 0020, University of Washington, Department of Economics.
  5. Sebastian Edwards & I. Igal Magendzo, 2002. "Dollarization and Economic Performance: What Do we Really Know?," Working Papers Central Bank of Chile 175, Central Bank of Chile.
  6. Andrew Berg & Eduardo Borensztein & Paolo Mauro, 2002. "An Evalution of Monetary Regime Options for Latin America," Working Papers 67, Oesterreichische Nationalbank (Austrian Central Bank).
  7. Sebastian Edwards & Eduardo Levy Yeyati, 2003. "Flexible Exchange Rates as Shock Absorbers," NBER Working Papers 9867, National Bureau of Economic Research, Inc.
  8. Thomas M Fullerton Jr & Miwa Hattori & Cuauhtemoc Calderon, 2004. "Error Correction Exchange Rate Modeling Evidence for Mexico," International Finance 0406001, EconWPA.
  9. Aaron Tornell & Frank Westermann & Lorenzo Martinez, 2004. "Nafta and Mexico Less-than-Steller Performance," UCLA Economics Working Papers 833, UCLA Department of Economics.
  10. von Furstenberg, George M. & Tabora, Carlos B., 2004. "Bolsa or NYSE: price discovery for Mexican shares," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(4), pages 295-311, October.
  11. Murray, John, 1999. "Why Canada Needs a Flexible Exchange Rate," Working Papers 99-12, Bank of Canada.
  12. Claudio Soto, 2003. "The Effects of Nominal and Real Shocks on the Chilean Real Exchange Rate During the Nineties," Working Papers Central Bank of Chile 220, Central Bank of Chile.
  13. Teolis, David P. & von Furstenberg, George M., 1993. "Reducing real exchange rate variability and drift: Mexico on the way to North American monetary union?," The North American Journal of Economics and Finance, Elsevier, vol. 4(2), pages 253-269.
  14. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  15. Ethier, Wilfred J., 2001. "The new regionalism in the Americas: a theoretical framework," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 159-172, July.
  16. Torres, Alberto & Vela, Oscar, 2003. "Trade integration and synchronization between the business cycles of Mexico and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 14(3), pages 319-342, December.
  17. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  18. Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
  19. Murray, John & Powell, James, 2003. "Dollarization in Canada: where does the buck stop?," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 145-172, August.
  20. Nanno Mulder & Sylvie Montout & Luis Peres, 2002. "Brazil and Mexico's Manufacturing Performance in International Perspective, 1970-1999," Working Papers 2002-05, CEPII research center.
  21. Larry Schembri, 2001. "Conference Summary: Revisiting the Case for Flexible Exchange Rates," Bank of Canada Review, Bank of Canada, vol. 2001(Autumn), pages 31-37.
  22. Lucas Navarro & Raimundo Soto, 2001. "Procyclical productivity : evidence from an emerging economy," Working Papers Central Bank of Chile 109, Central Bank of Chile.
  23. Laidler, David, 1999. "The Exchange Rate Regime and Canada's Monetary Order," Working Papers 99-7, Bank of Canada.
  24. Mulder, Nanno & Montout, Sylvie & Perez Lopes, Luis, 2002. "Brazil and Mexico's manufacturing performance in international perspective, 1970-1998," GGDC Research Memorandum 200252, .
  25. Sven Arndt, 2002. "The Pros and Cons of North American Monetary Integration," Claremont Colleges Working Papers 2002-09, Claremont Colleges.
  26. Murray, John & Schembri, Lawrence & St-Amant, Pierre, 2003. "Revisiting the case for flexible exchange rates in North America," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 207-240, August.
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