Carmen Diaz-Roldan, Ph.D, Univeridad de Castilla-La Mancha, Facultad de Derecho y CC. Sociales, Ronda de Toledo s/n, Ciudad Real, 13071, Spain and Alberto Montero-Soler, Ph.D, Departamento de Economia Politica, Universidad de Malaga, Departamento de Economia Politica, Facultad de Derecho, Universidad de Malaga, Campus de Teatinos, Malaga, 29071, Spain.
In spite of not including among the objectives of the agreement any kind of political coordination, NAFTA countries constitute an interesting case of study for issues related to monetary unions. As is well known, the first contribution to the literature on the Optimal Currency Areas (OCAs) was developed by Mundell (1961). According to Mundell’s theory countries interested in sharing a common currency should belong to the same “optimum currency area”. As an example, Mundell identified two OCAs: the eastern coast and the western coast of Canada and the USA. Consequently, the question is whether the trade integration between Canada and the USA (plus Mexico) promoted by NAFTA, has contributed to reinforce the properties that an OCA should satisfy.
In this paper we analyze the nature of the shocks hitting the NAFTA member countries over the period 1980-2007, as well as for the two sub periods before and after 1994, i.e., the start of the NAFTA. To this end, we first evaluate the relative importance of symmetric vs. asymmetric shocks, and then extract their temporary component. Our final aim would be assessing the vulnerability of the NAFTA countries to temporary and asymmetric shocks, which would be the most harmful case for the operation of a monetary union.