Integration Process and Macro-Policies Coordination in Mercosur: A Cycles Based Approach

Monetary integration in Mercosur processed in a context of strong macroeconomic volatility. This paper analyzes the feasibility of a monetary union within this zone. Instead of taking into account all the criteria of the optimal currencies areas, this study focuses on the macroeconomic cycles in Argentina, Brazil, and Uruguay. First, this paper presents a semi-structural VAR model for each country. It allows us to determine the source of shocks that hit these countries. Second, we decompose structural innovations -especially economic policies shocks-of domestic SSVAR into unobservable common and idiosyncratic components using a state-space model. We see in what extent economic policies arc coordinated between the Mercosur countries.