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Do the MERCOSUR Countries Form an Optimum Currency Area?

(Ph.D. Thesis)

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In the beginning the MERCOSUR customs union is analyzed on an economic-historical and political basis (institutional design, founding motives, brief history of economic and monetary integration of the MERCOSUR countries, etc.). In the following theoretical part potential benefits and costs of the creation of a single currency of less developed member states are compared. Traditional and new approaches to optimum currency area theory were reviewed and analyzed with respect to their validity for less developed economies. Based on these insights 13 theses have been developed and thereafter were tested empirically, as far as empirical material was available. Finally, in the annexe stylized facts of the most recent stabilization programs of Argentina, Brazil and Uruguay were presented, since they represent an important source of endogenous policy shocks to the MERCOSUR countries.

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. A depressive effect on the interest rate could provide an essential economic impetus to economic activity in the MERCOSUR countries. The competing role of a future MERCOSUR currency with world currencies like the US dollar or the euro will be less of a vision. In this context the challenge of overcoming dollarization in Argentina and Uruguay has to be placed also

Downloadable PDF File Full version of the Ph.D. Thesis (297 p.)
Downloadable PDF File Article drawn from the Thesis: A Track Record of Monetary Integration in the Southern Cone: Possible Lessons and Future Prospects
Downloadable PDF File Paper drawn from the Thesis: A Cost-Benefit Analysis of Monetary Union for Mercosur with Particular Emphasis on the Optimum Currency Area Theory
Downloadable PDF File Presentation at the Seminar on International Economics of the Vienna Institute for International Economic Studies (18/03/2002) : A Cost-Benefit Analysis of a Monetary Union for MERCOSUR with Particular Emphasis on the Optimum Currency Area Theory
Powerpoint Presentation Presentation at the Annual Congress of the Austrian Latin American Instutite (24/5/2002): Die europäische Wirtschafts- und Währungsunion, ein geeignetes Modell für Mercosur?
Assessment by Paul De Grauwe Assessment of the Ph.D. Thesis by Paul De Grauwe (1 p.)

© Ralf Kronberger , A-1020 Wien