Is Mercosur an Optimum Currency Area? An Assessment Using Generalized Purchasing Power Parity

J. Anchieta Neves, Petrobras
Leandro Stocco, University of Sao Paulo
Sergio Da Silva, Federal University of Santa Catarina

Abstract

We consider the cointegration approach of generalized purchasing power parity to show that a necessary condition for Mercosur to be an optimum currency area is met. Yet there are still large cross-country differences as to cast doubt on the success of either monetary union or official dollarization. The PPP puzzle is also found to occur in Mercosur.