Monetary union: European lessons,Latin American prospects |
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| Affiliation: | 1. Oesterreichische NationalBank, P.O. Box 61, A-1011 Wien, Austria;2. Banco Central de Chile, Santiago, Chile;3. University of Vienna, Vienna, Austria;1. Dipartimento di Scienze Economiche e Statistiche, University of Naples Federico II, Italy;2. Dipartimento di Studi Aziendali e Quantitativi, University of Naples Parthenope, Italy;1. York University, Department of Economics, Faculty of Liberal Arts and Professional Studies, 1084 Vari Hall, 4700 Keele St., Toronto, Canada M3J 1P3;2. Goethe University Frankfurt, Department of Management and Microeconomics, Grueneburgplatz 1, 60323 Frankfurt am Main, Germany;1. Asian Growth Research Institute and Osaka University, 11–4 Otemachi, Kokura-kita, Kitakyushu, Fukuoka, 803–0814, Japan;2. Faculty of Economics, Keio University, 2–15–45 Mita, Minato-ku, Tokyo, 108–8345, Japan |
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| Abstract: | This paper analyzes the long-run sustainability of monetary unions. We infer from the EMU experience that for monetary union to be sustainable, fiscal policy rules are necessary. That does not imply a formal Stability Pact, however. Labor market flexibility is more important for sustainability than cross-border labor mobility. Sound financial markets are another precondition. Lessons for Latin America and the Caribbean include, first, that the benefit-cost balance of a shift to monetary union is much less favorable in Latin America and the Caribbean than in Europe and, most important, that the region is some distance away from satisfying the necessary conditions for monetary union. That leaves dollarization as a limited option for small countries and floating rates combined with inflation targeting for much of the rest. |
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