Disentangling Business Cycles and Macroeconomic policy in Mercosur: a VAR and an Unobserved Components Models Approaches

This paper analyses the feasibility of a monetary union within the Mercosur, focusing on cycle synchronicity. Three questions are addressed, concerning respectively the features of shocks hitting each member, the impact of exchange rate regime differences on countries' responses and the share o...

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Bibliographic Details
Published in:Journal of economic integration 2007-09, Vol.22 (3), p.482-514
Main Authors: Allegret, Jean-Pierre, Sand-Zantman, Alain
Format: Article
Language:English
Subjects:
Business cycles
Common markets
Currency
Developing countries
Econometrics
Economic fluctuations
Economic models
Economic policy
Economic theory
Economics
Foreign exchange rates
Interest rates
LDCs
Macroeconomic modeling
Macroeconomic policy
Macroeconomics
Monetary unions
Real exchange rates
Studies
Time series
Vector autoregression
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Summary:This paper analyses the feasibility of a monetary union within the Mercosur, focusing on cycle synchronicity. Three questions are addressed, concerning respectively the features of shocks hitting each member, the impact of exchange rate regime differences on countries' responses and the share of common and idiosyncratic components in shocks and policy responses. Shocks are identified through identical country-VARs. This paper concludes that there exists a weak cycle synchronization, due to asymmetric shocks and divergences in policy responses. The endogenous approach in OCA theory can advise the adoption of a common nominal anchor, in order to speed up convergence.
ISSN:1225-651X
1976-5525
DOI:10.11130/jei.2007.22.3.482