Moreira, Emmanuel Pinto2012-03-192012-03-192010-03-01https://hdl.handle.net/10986/3728This paper offers a preliminary assessment of the potential benefits and costs of an economic and monetary union (EMU) between the Dominican Republic and Haiti -- two countries sharing the same island but whose history is one of conflict and divergent economic prospects in recent decades. After a brief review of the historical context, it examines the nature of these potential benefits and costs. It then conducts a preliminary analysis (using basic statistical techniques) of some key criteria for the formation of an economic and monetary union between the two countries. A more formal analysis of business cycle synchronization, based on basic and extended integrated vector auto-regression models with exogenous variables (VARX), is developed next. Overall, the analysis suggests that at this stage several economic criteria are not satisfied for the two countries to fully benefit from an economic and monetary union. At the same time, however, the endogeneity of most of these criteria (including the degree of business cycle synchronization) militates in favor of an aggressive medium-term agenda for integration between them.CC BY 3.0 IGOADJUSTMENT MECHANISMADVERSE SHOCKSAGGREGATE DEMANDARBITRAGEBANK CREDITBILATERAL EXCHANGE RATEBILATERAL EXCHANGE RATESBILATERAL TRADEBUFFERBUSINESS CYCLEBUSINESS CYCLESCAPITAL FLOWSCAPITAL MARKETSCAPITAL MOBILITYCENTRAL BANKCLARITYCOLONIALISMCOMMERCIAL BANKSCOMMODITYCOMMODITY EXPORTCOMMODITY PRICESCOMMON CURRENCYCOMMON CURRENCY AREACOMMON MARKETCOMMUNICATIONSCOMPETITIONCOMPETITION POLICYCOMPETITIVENESSCONSOLIDATIONCONSUMER GOODSCONSUMER PRICE INDEXCONSUMER PRICE INFLATIONCONSUMPTIONCONTROL VARIABLESCORRELATION COEFFICIENTCORRELATION COEFFICIENTSCREDIBILITYCURRENCIESCURRENCYCURRENCY RISKCURRENCY UNIONCURRENCY UNIONSCUSTOMS UNIONCYCLICAL FLUCTUATIONSDEFICITSDEMANDDEPRECIATIONDEPRESSIONDEVALUATIONDEVELOPING COUNTRIESDIFFERENT CURRENCIESDISCRETIONARY POLICYDISTORTIONSDOMESTIC CAPITAL MARKETSDOMESTIC CURRENCYDOMESTIC INFLATIONDOMESTIC INTEREST RATESDOMESTIC-CURRENCYDUMMY VARIABLESECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC INTEGRATIONECONOMIC PERFORMANCEECONOMIC POLICIESECONOMIC SHOCKSECONOMIESECONOMYENDOGENOUS VARIABLEENDOGENOUS VARIABLESEURO ZONEEXCHANGE RATEEXCHANGE RATE FLEXIBILITYEXCHANGE RATE MOVEMENTSEXCHANGE RATE RISKEXCHANGE RATE STABILITYEXCHANGE RATE UNCERTAINTYEXCHANGE RATE VARIABILITYEXCHANGE RATE VOLATILITYEXCHANGE-RATEEXCHANGESEXOGENOUS VARIABLEEXOGENOUS VARIABLESEXPORT MARKETEXPOSUREEXTERNAL FACTORSEXTERNAL SHOCKEXTERNAL SHOCKSEXTERNAL TRADEFINANCIAL CRISESFINANCIAL CRISISFINANCIAL INTEGRATIONFINANCIAL MARKETSFINANCIAL SUPPORTFINANCIAL TRANSACTIONSFINANCIAL VARIABLESFISCAL BALANCEFISCAL DEFICITFISCAL POLICIESFISCAL POLICYFIXED EXCHANGE RATEFIXED EXCHANGE RATESFLEXIBLE EXCHANGE RATEFLEXIBLE EXCHANGE RATESFOREIGN CURRENCIESFOREIGN CURRENCYFOREIGN DIRECT INVESTMENTFOREIGN EXCHANGEFORWARD CONTRACTSFRANC ZONEFREE TRADEFREE TRADE AREAHARMONIZATIONIMPORTIMPORTSINCOMEINDEPENDENT MONETARY POLICYINDUSTRIAL COUNTRIESINFLATIONINFLATION DIFFERENTIALINFLATION DIFFERENTIALSINFLATION EXPECTATIONSINFLATION RATEINFLATION RATESINFLATION TARGETINGINFLATION TARGETING REGIMEINTERESTINTERNATIONAL FINANCIAL STATISTICSINVESTMENT EXPENDITUREINVESTMENTSLABOR MARKETMACROECONOMIC ADJUSTMENTMACROECONOMIC POLICYMACROECONOMIC STABILITYMACROECONOMIC VARIABLESMAJOR CURRENCIESMONETARY AUTHORITIESMONETARY AUTHORITYMONETARY INDEPENDENCEMONETARY POLICIESMONETARY POLICYMONETARY POLICY AUTONOMYMONETARY POLICY INDEPENDENCEMONETARY UNIONMONETARY UNIONSMONEYNARROW BANDSNATIONAL CURRENCYNATURAL RESOURCESNOMINAL ANCHORNOMINAL DEPRECIATIONNOMINAL DEPRECIATIONSNOMINAL EXCHANGE RATENOMINAL WAGENOMINAL WAGESOIL IMPORTERSOIL PRICEOIL PRICESOPTIMUM CURRENCY AREASOUTPUTOUTPUT GAPOUTPUT GAPSPOLITICAL INSTABILITYPOLITICAL REGIMEPOSITIVE SPILLOVERSPOVERTY REDUCTIONPREFERENTIAL ACCESSPRICE FLEXIBILITYPRICE INDEXPRICE OF OILPRICE STABILITYPRIVATE INVESTMENTPRODUCTION STRUCTURESPUBLIC DEBTQUOTASRATE OF INFLATIONREAL APPRECIATIONREAL DEPRECIATIONREAL EFFECTIVE EXCHANGE RATEREAL EXCHANGE RATEREAL EXCHANGE RATESREAL INTEREST RATERELATIVE PRICEREMITTANCEREMITTANCESRESPONSE TO SHOCKSRETAIL PRICERISK PREMIUMSHARESINGLE CURRENCYSINGLE MARKETSOVEREIGNTYSTABLE INFLATIONSTRONG NOMINAL ANCHORSTRUCTURAL SHOCKSSUPPLYSUPPLY SHOCKSSURPLUSESTARIFF BARRIERSTARIFF POLICYTECHNICAL ASSISTANCETRADE INTEGRATIONTRADE POLICYTRADE SHOCKSTRADE STATISTICSTRADING PARTNERTRANSACTION COSTSTRANSACTIONS COSTSTRANSMISSION MECHANISMTREASURY BILLVARIANCE-COVARIANCE MATRIXWELFAREWORLD PRICEWorld Bank10.1596/1813-9450-5241