Does a Monetary Union protect against external shocks?

Abstract

This paper analyses the monetary consequences of the Latin-American trade integration process. We consider a sample of five countries-Argentina, Brazil, Chile, Mexico and Uruguay-spanning the period 1991-2007. The main question raised pertains to the feasibility of a monetary union between L.A. economies. To this end, we study whether this set of countries is characterized by business cycle synchronization with the occurrence of common shocks, a strong similarity in the adjustment process and the convergence of policy responses. We focus especially our attention on two points. First, we try to determine to what extent international disturbances influence the domestic business cycles through trade and/or financial channels. Second, we analyze the impact of the adoption of different exchange rate regimes on the countries' responses to shocks. All these features are the main issues in the literature relative to regional integration and OCA process.

Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Chinese Stock Markets

“…In addition, during the creation of the Mercosur between Argentina, Brazil, Paraguay and Uruguay in Latin American countries, this process led to the local currency devaluation. These exchange rate movements have substantial negative impact on the respective stock prices (Allegret & Sand-Zantman, 2009;Alvarez-Plata & Schrooten, 2004;Camarero, Flores Jr. & Tamarit, 2006). Hatemi-J and Roca (2005) reported that the two variables are significantly linked in the non-crisis period, but not at all during the crisis period for ASEAN countries.…”

External Vulnerabilities and Economic Integration - Is the Union of South American Nations a Promising Project?

“…First, this study covers some South American economies rarely considered by previous authors. Despite the fact that researchers have long been intrigued by the impact of shocks and convergence in South America, regional studies have particularly focused on specific subsets of UNASUR economies, notably MERCOSUR (i.e., Allegret and Sand, 2009a;Busse, Hefeker and Koopmann, 2006;Camarero, Flores and Tamarit, 2006;De Andrade, Falcão-Silva and Trautwein, 2005;Gimet, 2007a,b). Second, this study incorporates three external disturbances in contrast to those works that have mainly concentrated on the effects of exogenous monetary and commercial shocks (Ahmed, 2003;Canova, 2005;Mackowiak, 2007), restricting the study of external financial disturbances to only a few economies (Allegret and Sand, 2009b).…”

Economic Integration and Unemployment in Mercosur

“…Recent research on economic integration in Latin America has emphasized themes of regional policy coordination (Escaith and Paunovic, 2003), meeting the conditions for the establishment of an optimal currency area (Caceres, 2000, Allegret andSand-Zantman, 2009), the adoption of a common currency (Caceres, 2009a;Alesina and Barro, 2000;Karras, 2002, Corbo, 2001, Hallwood et al, 2006, and the role of institutions in the integration process (Caceres, 2008a(Caceres, , 2009b. The study of the impact of economic integration on labor markets has *Corresponding address: Social Policy Specialist, Unicef, 5802 Nicholson Lane no.…”