IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

An Evalution of Monetary Regime Options for Latin America

  • Andrew Berg

    ()

    (Research Department, International Monetary Fund)

  • Eduardo Borensztein

    ()

    (Research Department, International Monetary Fund)

  • Paolo Mauro

    ()

    (Research Department, International Monetary Fund)

Over the past decade, most Latin American countries have moved toward either extreme of floating rates or dollarization, in line with worldwide trends. In this paper, we evaluate the wisdom of those decisions and the choice of monetary regime more generally. We first evaluate the desirability of adopting a common currency in the region. We find that, under present circumstances, the costs of a common currency are likely to outweigh its benefits, as these countries do not trade much with each other and, moreover, they face diverse economic shocks, their business cycles are not coordinated, and they are affected by common shocks to sentiment in international financial markets only to the same extent than the average pair of emerging markets. We next consider the unilateral dollarization option. For most Latin American countries, this would be desirable only when there are strong links to the US economy, the credibility of the monetary authorities is irreversibly lost, and there is a keen demand for dollar-denominated financial assets. Finally, we review the relatively short experience of floating exchange regimes in Latin America and find that, despite the external constraints, floating countries have retained sufficient flexibility to use monetary policy for domestic ends in response to important shocks.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Working-Papers/2002/Working-Paper-67/fullversion/wp67_tcm16-6156.pdf
Our checks indicate that this address may not be valid because: 403 Forbidden. If this is indeed the case, please notify (Markus Knell and Helmut Stix)


Download Restriction: no

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 67.

as
in new window

Length: 62
Date of creation: 15 Jul 2002
Date of revision:
Handle: RePEc:onb:oenbwp:67
Contact details of provider: Postal: P.O. Box 61, A-1011 Vienna, Austria
Phone: +43/1/404 20 7205
Fax: +43/1/404 20 7299
Web page: http://www.oenb.at/
Email:


More information through EDIRC

Order Information: Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
  2. Jonathan David Ostry & Anne Marie Gulde & Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 95/121, International Monetary Fund.
  3. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  4. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1.
  5. Thomas Philippon & Jeromin Zettelmeyer & Eduardo Borensztein, 2001. "Monetary Independence in Emerging Markets; Does the Exchange Rate Regime Make a Difference?," IMF Working Papers 01/1, International Monetary Fund.
  6. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  7. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Policy Research Working Paper Series 2685, The World Bank.
  8. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  9. Olivier Jeanne & Andrew K. Rose, 2002. "Noise Trading And Exchange Rate Regimes," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 537-569, May.
  10. Ricardo Caballero & Arvind Krishnamurthy, 2001. "A "Vertical" Analysis of Crises and Intervention: Fear of Floating and Ex-ante Problems," NBER Working Papers 8428, National Bureau of Economic Research, Inc.
  11. Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Monetary Integration and Dollarization, chapter 8 Edward Elgar.
  12. Bayoumi, Tamim & Eichengreen, Barry & Mauro, Paolo, 2000. "On Regional Monetary Arrangements for ASEAN," Journal of the Japanese and International Economies, Elsevier, vol. 14(2), pages 121-148, June.
  13. Ernesto H. Stein & Jeffry Frieden & Piero Ghezzi, 2000. "Politics and Exchange Rates: A Cross-Country Approach to Latin America," Research Department Publications 3119, Inter-American Development Bank, Research Department.
  14. Charles Engel & John H. Rogers, 1995. "How wide is the border?," Research Working Paper 95-09, Federal Reserve Bank of Kansas City.
  15. Vittorio Corbo, 2000. "Monetary Policy in Latin America in the 90s," Working Papers Central Bank of Chile 78, Central Bank of Chile.
  16. Flood, Robert P & Rose, Andrew K, 1998. "Understanding Exchange Rate Volatility Without the Contrivance of Macroeconomics," CEPR Discussion Papers 1944, C.E.P.R. Discussion Papers.
  17. Eduardo Borensztein & Andrew Berg, 2000. "The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies," IMF Working Papers 00/29, International Monetary Fund.
  18. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  19. Frankel, Jeffrey & Rose, Andrew K., 2001. "An Estimate of the Effect of Common Currencies on Trade and Income," Working Paper Series rwp01-013, Harvard University, John F. Kennedy School of Government.
  20. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  21. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," IDB Publications (Working Papers) 6467, Inter-American Development Bank.
  22. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  23. Reuven Glick & Andrew K. Rose, 1998. "Contagion and Trade: Why Are Currency Crises Regional?," NBER Working Papers 6806, National Bureau of Economic Research, Inc.
  24. Michael W. Klein, 2002. "Dollarization and Trade," NBER Working Papers 8879, National Bureau of Economic Research, Inc.
  25. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  26. Eduardo Morón & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
  27. Catherine A. Pattillo & Andrew Berg & Gian-Maria Milesi-Ferretti & Eduardo Borensztein, 2000. "Anticipating Balance of Payments Crises; The Role of Early Warning Systems," IMF Occasional Papers 186, International Monetary Fund.
  28. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  29. Frankel, Jeffrey & Schmukler, Sergio & Serven, Luis, 2000. "Global transmission of interest rates : monetary independence and the currency regime," Policy Research Working Paper Series 2424, The World Bank.
  30. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.
  31. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274 Central Bank of Chile.
  32. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation; Causes and Policy Implications," IMF Working Papers 98/28, International Monetary Fund.
  33. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
  34. Eduardo Moron & Juan F. Castro, 2002. "Uncovering Central Bank Monetary Policy Objectives: Going Beyond Fear of Floating," Macroeconomics 0205002, EconWPA.
  35. David C. Parsley & Shang-Jin Wei, 2001. "Limiting Currency Volatility to Stimulate Goods Market Integration: A Price Based Approach," NBER Working Papers 8468, National Bureau of Economic Research, Inc.
  36. Jeanne, Olivier, 2003. "Why Do Emerging Economies Borrow in Foreign Currency?," CEPR Discussion Papers 4030, C.E.P.R. Discussion Papers.
  37. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
  38. Andrew Berg & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Esteban Jadresic & Paul R. Masson, 2000. "Exchange Rate Regimes in an Increasingly Integrated World Economy," IMF Occasional Papers 193, International Monetary Fund.
  39. Richard Clarida, 2001. "The Empirics of Monetary Policy Rules in Open Economies," NBER Working Papers 8603, National Bureau of Economic Research, Inc.
  40. Sebastian Edwards, 1999. "The Choice of Exchange Rate Regime in Developing and Middle Income Countries," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 9-28 National Bureau of Economic Research, Inc.
  41. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  42. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
  43. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications (Working Papers) 4128, Inter-American Development Bank.
  44. Corbo, Vittorio & Landerretche, Oscar & Schmidt-Hebbel, Klaus, 2001. "Assessing Inflation Targeting after a Decade of World Experience," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 343-68, October.
  45. Eduardo Borensztein & Andrew Berg, 2000. "The Pros and Cons of Full Dollarization," IMF Working Papers 00/50, International Monetary Fund.
  46. Paul R. Masson, 2000. "Exchange Rate Regime Transitions," IMF Working Papers 00/134, International Monetary Fund.
  47. Jadresic, Esteban & Masson, Paul & Mauro, Paolo, 2001. "Exchange Rate Regimes of Developing Countries: Global Context and Individual Choices," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 68-101, March.
  48. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, June.
  49. Eric Parrado & Andres Velasco, 2002. "Optimal Interest Rate Policy in a Small Open Economy," NBER Working Papers 8721, National Bureau of Economic Research, Inc.
  50. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
  51. Torsten Persson, 2001. "Currency unions and trade: how large is the treatment effect?," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 433-462, October.
  52. Sebastian Edwards & Miguel A. Savastano, 1998. "The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis," NBER Working Papers 6516, National Bureau of Economic Research, Inc.
  53. Paolo Mauro & Grace Juhn, 2002. "Long-Run Determinants of Exchange Rate Regimes; A Simple Sensitivity Analysis," IMF Working Papers 02/104, International Monetary Fund.
  54. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  55. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:onb:oenbwp:67. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Knell and Helmut Stix)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.