Nominal anchors and macroeconomic coordination options in MERCOSUR

Abstract

This study deals with the question of macroeconomic coordination in the context of MERCOSUR, analysing the contribution that different types of nominal anchors (monetary and exchange-rate); could make to the achievement of convergence of nominal indicators and sustained economic growth. The possible gains in terms of well-being associated with policy coordination are explored, in order to make a rational evaluation of the proposals calling for greater monetary coordination. An analysis is made of the problem of selecting the nominal anchor most suitable for serving as the basis for cooperative agreements, in an economy affected by real and monetary upsets. In view of the structural differences that exist among the economies that make up MERCOSUR, it is concluded that a flexible form of macroeconomic coordination is needed in the context of this regional bloc. Special attention is given, in the context of a centre-periphery monetary coordination model, to the problems of sustainability of an asymmetrical-type monetary coordination mechanism based on use of the exchange rate as a nominal anchor. A proposal is then set forth for a sustainable form of macroeconomic coordination under a flexible exchange agreement based on a system of ranges of fluctuation backed up by nominal convergence criteria, structural reforms designed to make markets more flexible, and possible moderate controls on capital movements. The study ends with some considerations on the design of a strategy providing for the gradual abandonment by Argentina of the quasi currency board mechanism, in order to permit macroeconomic coordination in MERCOSUR.