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Does a Monetary Union protect again foreign shocks? An assessment of Latin American integration using a Bayesian VAR

  • Jean-Pierre Allégret

    ()

    (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)

  • Alain Sand-Zantman

    ()

    (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)

This paper analyses the monetary consequences of the Latin-American trade integration process. We consider a sample of five countries –Argentina, Brazil, Chile, Mexico and Uruguay- spanning the period 1991-2007. The main question raised pertains to the feasibility of a monetary union between L.A. economies. To this end, we study whether this set of countries is characterized by business cycle synchronization with the occurrence of common shocks, a strong similarity in the adjustment process and the convergence of policy responses. We focus especially our attention on two points. First, we try to determine to what extent international disturbances influence the domestic business cycles through trade and/or financial channels. Second, we analyze the impact of the adoption of different exchange rate regimes on the countries’ responses to shocks. All these features are the main issues in the literature relative to regional integration and OCA process.

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Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 0809.

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Length: 20 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:gat:wpaper:0809
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  1. Rose, Andrew K, 2006. "A Stable International Monetary System Emerges: Bretton Woods, Reversed," CEPR Discussion Papers 5854, C.E.P.R. Discussion Papers.
  2. Vogelsang, T.J. & Perron, P., 1994. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," Cahiers de recherche 9422, Universite de Montreal, Departement de sciences economiques.
  3. Jean-Pierre Allegret & Alain Sand-Zantman, 2007. "Disentangling business cycles and macroeconomic policy in Mercosur: a VAR and unobserved components model approaches," Post-Print halshs-00238495, HAL.
  4. Eduardo Levy Yeyati & Martín González Rozada, 2005. "Global Factors and Emerging Market Spreads," Business School Working Papers globalfactorsspreads, Universidad Torcuato Di Tella.
  5. Salvatore, Dominick, 2001. "Which countries in the Americas should dollarize?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 347-355, April.
  6. Mackowiak, Bartosz, 2007. "External shocks, U.S. monetary policy and macroeconomic fluctuations in emerging markets," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2512-2520, November.
  7. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
  8. P&aauml;r �sterholm & Jeromin Zettelmeyer, 2008. "The Effect of External Conditions on Growth in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 595-623, December.
  9. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejia, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," NBER Working Papers 10520, National Bureau of Economic Research, Inc.
  10. Mariam Camarero & Renato G. Flores, Jr. & Cecilio R. Tamarit, . "Monetary Union and productivity differences in Mercosur countries," Working Papers on International Economics and Finance 03-04, FEDEA.
  11. Fabio Canova, 2003. "The transmission of US shocks to Latin America," Economics Working Papers 925, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2004.
  12. Corbo, Vittorio, 2001. "Is it time for a common currency for the Americas?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 241-248, April.
  13. Hallwood, Paul & Marsh, Ian W. & Scheibe, Jorg, 2006. "An assessment of the case for monetary union or official dollarization in five Latin American countries," Emerging Markets Review, Elsevier, vol. 7(1), pages 52-66, March.
  14. Allan Timmermann & Luis Catão & Marco Aiolfi, 2006. "Common Factors in Latin America's Business Cycles," IMF Working Papers 06/49, International Monetary Fund.
  15. Larrain Felipe & Jose Tavares, 2003. "Regional Currencies Versus Dollarization: Options for Asia and the Americas," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(1), pages 35-49.
  16. Robert B. Litterman, 1979. "Techniques of forecasting using vector autoregressions," Working Papers 115, Federal Reserve Bank of Minneapolis.
  17. Barry Eichengreen & Alan M. Taylor, 2003. "The Monetary Consequences of a Free Trade Area of the Americas," NBER Working Papers 9666, National Bureau of Economic Research, Inc.
  18. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  19. Robert B. Litterman, 1984. "The costs of intermediate targeting," Working Papers 254, Federal Reserve Bank of Minneapolis.
  20. Ahmed, Shaghil, 2003. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," Journal of Development Economics, Elsevier, vol. 72(1), pages 181-202, October.
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