Is a monetary union feasible for Latin America? Evidence from real effective exchange rates and interest rate pass-through levels

Stephen McKnight and Marco Robles Sánchez
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Marco Robles Sánchez: Centro de Estudios Monetarios Latinoamericanos

Estudios Económicos, 2014, vol. 29, issue 2, 225-262

Abstract: This paper assesses the feasibility of forming a common currency in Latin America. First, we examine the cointegration and Granger causality of real effective exchange rates and find evidence supporting a monetary union comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, and Paraguay. Second, we examine the degree of heterogeneity in the transmission of monetary policy within the hypothetical monetary union. Considerable asymmetries in the pass-through levels of interest rates are found to exist indicating the need for substantial reforms before a Latin American monetary union could take place.

Keywords: monetary union; cointegration; granger causality; interest rate pass-through; monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E52 F15 F33 F36 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:emx:esteco:v:29:y:2014:i:2:p:225-262

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