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Is Mercosur an optimum currency area?

  • Neves, J. Anchieta
  • Stocco, Leandro
  • Da Silva, Sergio

We find that generalized purchasing power parity does not hold for Mercosur, and thus that the South American trade group does not constitute an optimum currency area. We also find that the role of the United States cannot be neglected in the region, and that high short run volatility of real exchange rates is accompanied by slow adjustment processes of between 2 and 16 years (PPP puzzle).

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File URL: http://mpra.ub.uni-muenchen.de/2758/1/MPRA_paper_2758.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2758.

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Date of creation: 16 Apr 2007
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Handle: RePEc:pra:mprapa:2758
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  1. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
  2. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
  3. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
  4. César Calderón & Alberto E. Chong & Ernesto H. Stein, 2003. "Trade Intensity and Business Cycle Synchronization: Are Developing Countries any Different?," IDB Publications (Working Papers) 6501, Inter-American Development Bank.
  5. Patrick Minford, 1993. "The Path to Monetary Union in Europe," The World Economy, Wiley Blackwell, vol. 16(1), pages 17-27, 01.
  6. 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,.
  7. Dickey, David A & Pantula, Sastry G, 1987. "Determining the Ordering of Differencing in Autoregressive Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 455-61, October.
  8. Paul Hallwood & Ian W. Marsh & Joerg Scheibe, 2004. "An Assessment of the Case for Monetary Union or Official Dollarization in Argentina, Brazil, Chile, Uruguay and Venezuela," Working papers 2004-13, University of Connecticut, Department of Economics.
  9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  10. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  11. David Bernstein, 2000. "Generalized purchasing power parity and the case of the European Union as a successful currency area," Atlantic Economic Journal, International Atlantic Economic Society, vol. 28(4), pages 385-395, December.
  12. Kentaro Kawasaki & Eiji Ogawa, 2006. "What Should the Weights of the Three Major Currencies be in a Common Currency Basket in East Asia? ," Asian Economic Journal, East Asian Economic Association, vol. 20(1), pages 75-94, 03.
  13. Enders, Walter & Hurn, Stan, 1994. "Theory and Tests of Generalized Purchasing-Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 179-90, June.
  14. S Da Silva, 2002. "A Classroom Guide to the Equilibrium Exchange Rate Model," Economic Issues Journal Articles, Economic Issues, vol. 7(2), pages 1-10, September.
  15. Alexander, Volbert & von Furstenberg, George M., 2000. "Monetary unions--a superior alternative to full dollarization in the long run," The North American Journal of Economics and Finance, Elsevier, vol. 11(2), pages 205-225, December.
  16. Enders, Walter & Hurn, Stan, 1997. "Common trends and generalized purchasing power parity," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 43(3), pages 437-443.
  17. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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