Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264664 
Year of Publication: 
2002
Series/Report no.: 
Working Paper No. 72
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
Evaluating the costs and benefits of exchange rate stability requires a somewhat different approach for Mercosur than for the EU. EU member countries are highly integrated in terms of trade in goods and services. By contrast, trade integration within Mercosur is much more limited, intra-area exchange rates are thus less important than the exchange rate vis-a-vis the dollar and the euro. This contribution analyses the impact of both aspects of financial volatility (exchange rate and interest rate volatility) on investment and labour markets in the Southern Cone, finding that both exchange rate variability (mainly against the dollar and the euro) and (domestic) interest rate volatility have a significant dampening impact on employment and investment, as predicted by our theoretical model.
Subjects: 
currency union
exchange rate and interest rate variability
job creation
Mercosur
option value effects
JEL: 
E42
F36
F42
Document Type: 
Working Paper

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