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What Macroeconomic Measures Are Needed for Free Trade to Flourish in the Western Hemisphere?

Published online by Cambridge University Press:  02 January 2018

Barry Eichengreen
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Abstract

Recent experience has made clear the importance of macroeconomic stability, and exchange rate stability in particular, in generating support for regional integration. The tensions created by exchange-rate and financial volatility are clearly evident in the recent history of Mercosur and may also hinder the development of a Free Trade Area of the Americas. This essay argues that ambitious schemes for a single regional currency are not a practical response to this problem. Nor would a system of currency pegs or bands be sufficiently durable to provide a lasting solution. Instead, countries must solve this problem at home. In practice, this means adopting sound and stable monetary policies backed by a clear and coherent operating strategy, such as inflation targeting. With such policies in place, exchange rate volatility can be reduced to levels compatible with regional integration.

Type
Research Article
Information
Latin American Politics and Society , Volume 46 , Issue 2 , Summer 2004 , pp. 1 - 27
Copyright
Copyright © University of Miami 2004

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