Monetary and Exchange Rate Arrangements for Nafta

ByBarry J. Eichengreen, Tamim Bayoumi

March 1, 1993

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper considers the extent to which the North American Free Trade Area (NAFTA) meets the criteria for a common currency area. NAFTA is compared with the EC, a regional grouping for which initial plans for a monetary union are already in place. Most of the anticipated benefits from a monetary union in the EC apply with equal force to NAFTA. However, because the underlying disturbances are more diverse across members of NAFTA, the costs of abandoning the exchange rate instrument are likely to be higher. This is particularly true when NAFTA is compared to the EC’s continental core.

Subject: Conventional peg, Economic integration, Economic theory, Exchange rates, Foreign exchange, Monetary unions, Supply shocks

Keywords: aggregate supply supply curve, Conventional peg, demand shock, EC member country, Europe, exchange rate uncertainty, Exchange rates, Monetary unions, North America, single currency, Southern Europe, supply and demand disturbance, supply curve, supply disturbance, Supply shocks, WP

Pages:
54
Volume:
1993
DOI:
https://doi.org/10.5089/9781451843804.001
Issue:
020
Series:
Working Paper No. 1993/020
Stock No:
WPIEA0201993
ISBN:
9781451843804
ISSN:
1018-5941

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Notes

Studies the extent to which the North American Free Trade Area (NAFTA) meets the criteria for a common currency area, compared with the EC.

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