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Disentangling business cycles and macroeconomic policy in Mercosur: a VAR and unobserved components model approaches

  • Jean-Pierre Allegret

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Alain Sand-Zantman

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

This paper analyses the feasibility of a monetary union within the Mercosur, focusing on cycle synchronicity. Three questions are addressed, concerning respectively the features of shocks hitting each member, the impact of exchange rate regime differences on countries' responses and the share of common and idiosyncratic components in shocks and policy responses. Shocks are identified through identical country-VARs. This paper concludes that there exists a weak cycle synchronization, due to asymmetric shocks and divergences in policy responses. The endogenous approach in OCA theory can advise the adoption of a common nominal anchor, in order to speed up convergence.

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Paper provided by HAL in its series Post-Print with number halshs-00238495.

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Date of creation: 2007
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Publication status: Published, Journal of Economic Integration, 2007, 22, 3, 482-514
Handle: RePEc:hal:journl:halshs-00238495
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00238495/en/
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  14. Nick Chamie (Bank of Canada), & Alain DeSerres (Bank of Canada), & Rene Lalonde (Bank of Canada), . "Optimum Currency Areas and Shock Asymmetry: A Comparison of Europe and the United States," Working Papers 94-1, Bank of Canada.
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  17. Rand, John & Tarp, Finn, 2001. "Business Cycles in Developing Countries: Are They Different?," MPRA Paper 62445, University Library of Munich, Germany.
  18. 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.
  19. Nick Chamie & Alain DeSerres & Rene Lalonde, 1994. "Optimum Currency Areas and Shock Asymmetry A Comparison of Europe and the United States," International Finance 9406001, EconWPA, revised 23 Jun 1994.
  20. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, June.
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  22. 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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  24. Norman Loayza & J. Humberto Lopez & Angel J. Ubide, 1999. "Sectorial Macroeconomic Interdependencies; Evidence for Latin America, East Asia and Europe," IMF Working Papers 99/11, International Monetary Fund.
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