The Cost of Financial Market Variability in the Southern Cone

Ansgar Belke and Daniel Gros

Revue économique, 2003, vol. 54, issue 5, 1091-1115

Abstract: The paper evaluates the costs and benefits of exchange rate (and interest rate) stability for the countries in the Southern Cone of Latin America. It investigates the correlation between two aspects of financial market volatility, namely that of the exchange rate and interest rate volatility, during the last three decades, comparing the situation in the Southern Cone to that in the eu (pre-emu). It also analyses the impact of both aspects of financial volatility on investment and labor markets in the Southern Cone, finding that both exchange rate and interest rate variability have a significant dampening impact on employment and investment.

Date: 2003
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