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A Cost-Benefit Analysis of a Monetary Union for MERCOSUR with Particular Emphasis on the Optimum Currency Area Theory?

Author

Listed:
  • Ralf Kronberger

    (Federal Austrian Economic Chamber)

Abstract

Potential costs and benefits of a monetary union for the four MERCOSUR countries Argentina, Brazil, Paraguay and Uruguay are compared. Particular emphasis was put on the traditional and new approaches to optimum currency area theory which were reviewed and analyzed with respect to their validity for less developed economies. Based on these insights 7 theses have been developed and thereafter were tested empirically, as far as empirical material was available. Evidently MERCOSUR will not start negotiating a treaty on a MERCOSUR monetary union à la Maastricht tomorrow. The necessary institutional framework is de facto non-existent. Further the member countries have shown little willingness of monetary cooperation in the past. Nonetheless, the creation of a single MERCOSUR currency could serve as political lubricant for deepening integration. Such a deepening of the integration process could go hand in hand with sound and coordinated macroeconomic management which in turn could lead to more stability and increased credibility in the region.

Suggested Citation

  • Ralf Kronberger, 2004. "A Cost-Benefit Analysis of a Monetary Union for MERCOSUR with Particular Emphasis on the Optimum Currency Area Theory?," Macroeconomics 0407010, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0407010
    Note: Type of Document - pdf; pages: 80
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0407/0407010.pdf
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    Cited by:

    1. Foresti, Pasquale, 2007. "Is Latin America an Optimal Currency Area? Evidence from a Structural Vector Auto-regression analysis," MPRA Paper 2961, University Library of Munich, Germany, revised Apr 2008.
    2. Escaith, Hubert, 2003. "Modeling regional macroeconomic interactions: situation and perspectives for macroeconomic coordination in Latin America. Background paper prepared for the REDIMA workshop on Modeling Macroeconomic Co," Documentos de Proyectos 4, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

    More about this item

    Keywords

    Mercosur; monetary union; monetary integration; optimum currency area theory;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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