Is Mercosur an optimum currency area? An assessment using generalized purchasing power parity

Abstract

We consider the cointegration approach of generalized purchasing power parity to show that a necessary condition for Mercosur to be an optimum currency area is met. Yet there are still large cross-country differences as to cast doubt on the success of either monetary union or official dollarization. The PPP puzzle is also found to occur in Mercosur.