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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
Contact details of provider: Postal: 24255 Pacific Coast Hwy, Malibu CA
Web page: http://bschool.pepperdine.edu/jef

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  1. Edwards, Sebastian & Levy Yeyati, Eduardo, 2005. "Flexible exchange rates as shock absorbers," European Economic Review, Elsevier, vol. 49(8), pages 2079-2105, November.
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  6. 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.
  7. Berg, Andrew & Borensztein, Eduardo & Mauro, Paolo, 2002. "An evaluation of monetary regime options for Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 213-235, December.
  8. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  9. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  10. Sebastian Edwards, 2002. "The Great Exchange Rate Debate after Argentina," Working Papers 74, Oesterreichische Nationalbank (Austrian Central Bank).
  11. Thomas Fullerton & Miwa Hattori & Cuauhtémoc Calderón, 2001. "Error correction exchange rate modeling: Evidence for Mexico," Journal of Economics and Finance, Springer, vol. 25(3), pages 358-368, September.
  12. Sebastian Edwards & I. Igal Magendzo, 2003. "Dollarization and economic performance: What do we really know?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 351-363.
  13. 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.
  14. Sven Arndt, 2002. "The Pros and Cons of North American Monetary Integration," Claremont Colleges Working Papers 2002-09, Claremont Colleges.
  15. Charles Engel, 2001. "Optimal exchange rate policy: the influence of price setting and asset markets," Proceedings, Federal Reserve Bank of Cleveland, pages 518-547.
  16. 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.
  17. Murray, John, 1999. "Why Canada Needs a Flexible Exchange Rate," Working Papers 99-12, Bank of Canada.
  18. 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.
  19. 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.
  20. 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.
  21. 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.
  22. 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.
  23. 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.
  24. Laidler, David, 1999. "The Exchange Rate Regime and Canada's Monetary Order," Working Papers 99-7, Bank of Canada.
  25. 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.
  26. Mulder, Nanno & Montout, Sylvie & Perez Lopes, Luis, 2002. "Brazil and Mexico's manufacturing performance in international perspective, 1970-1998," GGDC Research Memorandum 200252, Groningen Growth and Development Centre, University of Groningen.
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