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

Ralf Kronberger

Macroeconomics from EconWPA

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.

Keywords: Mercosur; monetary union; monetary integration; optimum currency area theory (search for similar items in EconPapers)
JEL-codes: E32 E42 F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-mac
Date: 2004-07-08
Note: Type of Document - pdf; pages: 80
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0407010

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