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

  • Stephen McKnight El Colegio de México
  • Marco Robles Sánchez Centro de Estudios Monetarios Latinoamericanos
Keywords: monetary union, cointegration, granger causality, interest rate pass-through, monetary policy
JEL Classification: E43, E52, F15, F33, F36

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.

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Published
01-07-2014
How to Cite
McKnightS., & Robles SánchezM. (2014). Is a monetary union feasible for Latin America? Evidence from real effective exchange rates and interest rate pass-through levels. Estudios Económicos, 29(2), 225-262. https://doi.org/10.24201/ee.v29i2.69
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