Disintegrating effects of monetary policies in the MERCOSUR

This paper shows that differences in the monetary policies in Argentina and Brazil have produced adverse effects on the structures of intra-regional trade and other target variables of economic integration in the MERCOSUR. The long-lasting coexistence of a strictly reserve-restrained monetary regime in Argentina with more flexible policies in Brazil has led to the development of a fundamental asymmetry in the adjustment mechanisms of both economies to common shocks. In several steps of modelling and econometric analysis the paper provides evidence for economic disintegration that has been caused by this lack of monetary integration.