Do the Mercosur Countries Form an Optimum Currency Area?

Do the MERCOSUR Countries Form an Optimum Currency Area?

(Ph.D. Thesis by Ralf Kronberger)

Abstract	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

	Full version of the Ph.D. Thesis (297 p.)

	Presentation at the University of Applied Sciences of the bfi in Vienna (19/4/2005), Análisis económico de Mercosur (Español)

	Presentation at the Annual Meeting of the Austrian Economic Association (NOeG) in Klagenfurt (16/5/2003), Kosten-Nutzen-Analyse einer Mercosur-Währungsunion mit besonderer Berücksichtigung der Theorie der optimalen Währungsgebiete (German)

	Kronberger, R. (2002), A Cost-Benefit Analysis of a Monetary Union for Mercosur with particular emphasis on the Optimum Currency Area Theory, Integration & Trade N° 16 (January - June2002), INTAL - Inter-American Development Bank, Buenos Aires

	Kronberger, R. (2002), Un análisis de costos y beneficios de una unión monetaria con hincapié en la teoría del área monetria óptima, Integración & Comercio N° 16 (Enero - Junio 2002), INTAL - Banco Interaméricano de Desarrollo, Buenos Aires (Español)

	Article drawn from the Thesis: A Track Record of Monetary Integration in the Southern Cone: Possible Lessons and Future Prospects

	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

	Presentation at the Annual Congress of the Austrian Latin American Instutite (24/5/2002): Die europäische Wirtschafts- und Währungsunion, ein geeignetes Modell für Mercosur? (German)

	Interview for Radio Österreich International (ORF) on Argentina, Mercosur Monetary Union and European Union (25/5/2002) (Español)

	Assessment of the Ph.D. Thesis by Paul De Grauwe (1 p.)

	Extensive bibliographic reference in the Monthly Newsletter of the Inter-American Development Bank - Integration and Regional Programs Department (4/2001) on pp. 10

	Kronberger, R. (2001), The dollar or the euro for Argentina, Wirtschaftspolitische Blätter 5/2001, Wien (German)
	10 years ago Argentina implemented a currency board that led to a successful stabilization of the Argentinean economy. The resulting real appreciation of the Argentinean Peso followed by a series of negative exogenous shocks to the Argentinean economy paved the way for a deep recession, as predicted by the optimum currency area theory. The recently introduced exchange rate splitting by the additional inclusion of the euro will not provide sufficient room for exchange rate adjustment. Further will the euro in the near future not adopt a similar role to the dollar in the Argentinean economy.


See the authors personal web site-2005-04-19