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

The road to monetary union in Latin America: An EMS-type fixed exchange rate system as an intermediate step

  • Garcia Rocabado, Daniel
Registered author(s):

    In the light of new political initiatives in Latin America, discussions of expanding the monetary cooperation in the region have intensified and the idea of monetary union is gaining popularity. Since literature on the subject widely dismisses the feasibility of Latin America adopting a single currency in the short- to medium-term, several authors have proposed to follow the European example by establishing a regional exchange rate system, similar to the European Monetary System (EMS), as an intermediate step. While these proposals usually describe the general benefits of an EMS-type system for Latin America, they rarely discuss how such a regional arrangement can institutionally be designed or what the main lessons are, that can be derived from the EMS experience, in order for a Latin American exchange rate system to be successful. Thus, it is the central aim of this paper to address these specific issues by providing a detailed look at the design and functioning of regional fixed rate systems as an intermediate step towards monetary union. For this purpose, first, an overview of the current Latin American initiatives in the field of monetary integration is given, followed by a general analysis of fixed rate systems from an institutional perspective. This analysis presents the basic design choices available to policymakers when creating such a system and describes how the decided upon rules (i.e. the institutional framework) determine the overall monetary adjustment constraints for the participating countries. Further, the paper examines the historic, political and economic rationale as well as the overall institutional design and functioning of a specific fixed rate system, namely the EMS. It is shown that the EMS did not only constitute an efficient monetary arrangement by effectively reducing both nominal and real exchange rate variability in the region, but can also be considered a successful intermediate step towards monetary union in Europe. The paper ends with a discussion of the main lessons drawn from the EMS analysis and their implications for the Latin American prospects of possibly establishing a similar regional exchange rate mechanism.

    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://econstor.eu/bitstream/10419/48560/1/664685188.pdf
    Download Restriction: no

    Paper provided by University of Würzburg, Chair for Monetary Policy and International Economics in its series W.E.P. - Würzburg Economic Papers with number 85.

    as
    in new window

    Length:
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:zbw:wuewep:85
    Contact details of provider: Postal: Sanderring 2, D-97070 Würzburg
    Phone: (0931) 31-2901
    Fax: (0931) 31-2101
    Web page: http://www.vwl.uni-wuerzburg.de/en/no_cache/lehrstuehle/vwl1/home/
    Email:


    More information through EDIRC

    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. Sebastian Edwards, 2006. "Monetary Unions, External Shocks and Economic Performance," Working Papers 126, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Pereira, Luiz Carlos Bresser & Brito, Marcio Holland de, 2009. "Common currency and economic integration in mercosur," Textos para discussão 190, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    3. Óscar Bajo Rubio & Simón Sosvilla Rivero & Fernando Fernández Rodríguez, 2000. "Asymmetry In The Ems: New Evidence Based On Non-Linear Forecasts," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0001, Departamento de Economía - Universidad Pública de Navarra.
    4. Krugman, Paul R, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 669-82, August.
    5. 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.
    6. repec:cup:cbooks:9780521711500 is not listed on IDEAS
    7. 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.
    8. Sebastian Edwards, 2006. "Monetary unions, external shocks and economic performance: A Latin American perspective," International Economics and Economic Policy, Springer, vol. 3(3), pages 225-247, December.
    9. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
    10. Hochreiter, Eduard & Schmidt-Hebbel, Klaus & Winckler, Georg, 2002. "Monetary union: European lessons, Latin American prospects," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 297-321, December.
    11. Andrew Berg & Paolo Mauro & Eduardo Borensztein, 2002. "An Evaluation of Monetary Regime Options for Latin America," IMF Working Papers 02/211, International Monetary Fund.
    12. 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.
    13. Fatum, Rasmus & Hutchison, Michael M., 2003. "Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan," Santa Cruz Center for International Economics, Working Paper Series qt2883n7z5, Center for International Economics, UC Santa Cruz.
    14. Kempa, Bernd & Nelles, Michael, 1999. " The Theory of Exchange Rate Target Zones," Journal of Economic Surveys, Wiley Blackwell, vol. 13(2), pages 173-210, April.
    15. Anna J. Schwartz, 2000. "The Rise and Fall of Foreign Exchange Market Intervention," NBER Working Papers 7751, National Bureau of Economic Research, Inc.
    16. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc.
    17. Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1, October.
    18. Melitz, Jacques, 1985. "The welfare case for the European Monetary System," Journal of International Money and Finance, Elsevier, vol. 4(4), pages 485-506, December.
    19. William H. Branson & Jacob A. Frenkel & Morris Goldstein, 1990. "International Policy Coordination and Exchange Rate Fluctuations," NBER Books, National Bureau of Economic Research, Inc, number bran90-1, October.
    20. Maurice Obstfeld, 1988. "Competitiveness, Realignment, and Speculation: The Role of Financial Markets," NBER Working Papers 2539, National Bureau of Economic Research, Inc.
    21. Larrain Felipe & Jose Tavares, 2003. "Regional Currencies Versus Dollarization: Options for Asia and the Americas," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(1), pages 35-49.
    22. Arize, Augustine C. & Osang, Thomas & Slottje, Daniel J., 2008. "Exchange-rate volatility in Latin America and its impact on foreign trade," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 33-44.
    23. Edgar L. Feige & Vedran Šošiæ & Michael Faulend & Velimir Šonje, 2002. "Unofficial Dollarization in Latin America: Currency Substitution, Network Externalities and Irreversibility," International Finance 0205002, EconWPA.
    24. Rasmus Fatum & Michael M. Hutchison, . "ECB Foreign Exchange Intervention and the Euro: Institutional Framework, News and Intervention," EPRU Working Paper Series 02-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    25. Jean-François Ponsot, 2009. "New financial architecture and regional monetary integration in Latin America," Post-Print halshs-00390436, HAL.
    26. Diego Moccero & Carlos Winograd, 2005. "Macroeconomic Coordination Policies: Why and How?: From Europe to MERCOSUR," IDB Publications (Working Papers) 19358, Inter-American Development Bank.
    27. Bofinger, Peter, 2001. "Monetary Policy: Goals, Institutions, Strategies, and Instruments," OUP Catalogue, Oxford University Press, number 9780199248568, March.
    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:zbw:wuewep:85. 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: (ZBW - German National Library of Economics)

    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.