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

Listed author(s):
  • 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. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Charles Engel, 2001. "Optimal exchange rate policy: the influence of price setting and asset markets," Proceedings, Federal Reserve Bank of Cleveland, pages 518-547.
  6. 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.
  7. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2004. "NAFTA and Mexico's Less-Than-Stellar Performance," NBER Working Papers 10289, National Bureau of Economic Research, Inc.
  8. Lucas Navarro & Raimundo Soto, 2001. "Procyclical productivity : evidence from an emerging economy," Working Papers Central Bank of Chile 109, Central Bank of Chile.
  9. 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.
  10. 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.
  11. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  12. 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.
  13. 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.
  14. Thomas M Fullerton Jr & Miwa Hattori & Cuauhtemoc Calderon, 2004. "Error Correction Exchange Rate Modeling Evidence for Mexico," International Finance 0406001, EconWPA.
  15. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  16. Sebastian Edwards & Eduardo Levy Yeyati, 2004. "Flexible Exchange Rates as Shock Absorbers," Business School Working Papers exchangerates, Universidad Torcuato Di Tella.
  17. Obstfeld,Maurice & Taylor,Alan M., 2004. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521633178, December.
  18. Murray, John, 1999. "Why Canada Needs a Flexible Exchange Rate," Staff Working Papers 99-12, Bank of Canada.
  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. 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.
  21. 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.
  22. 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.
  23. Laidler, David, 1999. "The Exchange Rate Regime and Canada's Monetary Order," Staff Working Papers 99-7, Bank of Canada.
  24. 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.
  25. 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.
  26. Sven Arndt, 2002. "The Pros and Cons of North American Monetary Integration," Claremont Colleges Working Papers 2002-09, Claremont Colleges.
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