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Is Mercosur an optimum currency area?

Author

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

Abstract

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).

Suggested Citation

  • Neves, J. Anchieta & Stocco, Leandro & Da Silva, Sergio, 2007. "Is Mercosur an optimum currency area?," MPRA Paper 2758, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:2758
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    File URL: https://mpra.ub.uni-muenchen.de/2758/1/MPRA_paper_2758.pdf
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    References listed on IDEAS

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    6. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
    7. 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.
    8. 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 179-190, June.
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    Cited by:

    1. Agénor, Pierre-Richard & Aizenman, Joshua, 2011. "Capital market imperfections and the theory of optimum currency areas," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1659-1675.
    2. Dimitrios Sideris, 2009. "Do the new EU member states form an Optimum Currency Area with the eurozone? Evidence from six Central and Eastern European Countries," SEEMHN papers 15, National Bank of Serbia.

    More about this item

    Keywords

    generalized purchasing power parity; optimum currency area; Mercosur; PPP puzzle;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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