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Monetary Integration in the Southern Cone: Mercosur is not like the EU?

Author

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  • Ansgar Belke

    (University of Hohenheim (Department of Economics), Stuttgart/Germany)

  • Daniel Gros

    (Centre for European Policy Studies (CEPS), Brussels/Belgium)

Abstract

Evaluating the costs and benefits of exchange rate stability requires a somewhat different approach for Mercosur than for the EU. EU member countries are highly integrated in terms of trade in goods and services. By contrast, trade integration within Mercosur is much more limited, intra-area exchange rates are thus less important than the exchange rate vis-a-vis the dollar and the euro. This contribution analyses the impact of both aspects of financial volatility (exchange rate and interest rate volatility) on investment and labour markets in the Southern Cone, finding that both exchange rate variability (mainly against the dollar and the euro) and (domestic) interest rate volatility have a significant dampening impact on employment and investment, as predicted by our theoretical model.

Suggested Citation

  • Ansgar Belke & Daniel Gros, 2002. "Monetary Integration in the Southern Cone: Mercosur is not like the EU?," Working Papers 72, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:72
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    References listed on IDEAS

    as
    1. Darby, Julia, et al, 1999. "The Impact of Exchange Rate Uncertainty on the Level of Investment," Economic Journal, Royal Economic Society, vol. 109(454), pages 55-67, March.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
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    6. Ansgar Belke & Daniel Gros, 2001. "Real Impacts of Intra-European Exchange Rate Variability: A Case for EMU?," Open Economies Review, Springer, vol. 12(3), pages 231-264, July.
    7. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Ansgar Belke & Ralph Setzer, 2004. "Incertitude sur le taux de change et chômage dans les pays candidats : un argument pour l'euroïsation ?," Economie & Prévision, La Documentation Française, vol. 163(2), pages 63-74.
    2. Cohen, Joseph N., 2008. "Managing the Faustian bargain: monetary autonomy in the pursuit of development in Eastern Europe and Latin America," MPRA Paper 22435, University Library of Munich, Germany.
    3. Bathia, Deven & Demirer, Riza & Gupta, Rangan & Kotzé, Kevin, 2021. "Unemployment fluctuations and currency returns in the United Kingdom: Evidence from over one and a half century of data," Journal of Multinational Financial Management, Elsevier, vol. 61(C).
    4. Mejia-Reyes, P., 2004. "Classical Business Cycles in America: Are National Business Cycles Synchronised?," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(3), pages 75-102.
    5. Christoph S. Weber, 2020. "The unemployment effect of central bank transparency," Empirical Economics, Springer, vol. 59(6), pages 2947-2975, December.
    6. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42, Bank for International Settlements.
    7. Ansgar Belke, 2002. "EU Enlargement, Exchange Rate Variability and Labor Market Performance," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 213/2002, Department of Economics, University of Hohenheim, Germany.
    8. Ansgar Belke & Kai Geisslreither & Daniel Gros, 2004. "On the Relationship Between Exchange Rates and Interest Rates: Evidence from the Southern Cone," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(122), pages 35-64.
    9. Weber, Christoph S., 2019. "The effect of central bank transparency on exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 165-181.
    10. Hochreiter, Eduard & Schmidt-Hebbel, Klaus & Winckler, Georg, 2002. "Monetary union: European lessons, Latin American prospects," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 297-321, December.
    11. Sánchez-Martín, Miguel Eduardo & de Arce, Rafael & Escribano, Gonzalo, 2014. "Do changes in the rules of the game affect FDI flows in Latin America? A look at the macroeconomic, institutional and regional integration determinants of FDI," European Journal of Political Economy, Elsevier, vol. 34(C), pages 279-299.
    12. BELKE Ansgar & SETZER Ralph, 2010. "The Costs of Exchange Rate Volatility for Labor Markets: Some Empirical Evidence from the CEE Economies," EcoMod2003 330700012, EcoMod.
    13. Belke, Ansgar & Gros, Daniel, 2002. "Monetary integration in the Southern Cone," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 323-349, December.
    14. Frederik Stender, 2018. "MERCOSUR in gravity: an accounting approach to analyzing its trade effects," International Economics and Economic Policy, Springer, vol. 15(2), pages 501-522, April.

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    More about this item

    Keywords

    currency union; exchange rate and interest rate variability; job creation; Mercosur; option value effects;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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