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

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  • George M. von Furstenberg

    (Indiana University)

Abstract

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.

Suggested Citation

  • George M. von Furstenberg, 2005. "Mexico versus Canada: Stability Benefits from Making Common Currency with USD?," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 10(2), pages 15-37, Summer.
  • Handle: RePEc:pep:journl:v:10:y:2005:i:2:p:15-37
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Common Currency; Currency; Mexico; Canada; USA; USD;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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