MONETARY AND EXCHANGE-RATE ARRANGEMENTS FOR NAFTA

This paper considers the extent to which the North American Free Trade Area (NAFTA) meets the criteria for a common currency area. NAFTA is compared with the EC, a regional grouping for which initial plans for a monetary union are already in place. Most of the anticipated benefit s from a monetary union in the EC apply with equal force to NAFTA. How ever, because the underlying disturbances arc more diverse across memb ers of NAFTA, the costs of abandoning the exchange rate instrument are likely to be higher. This is particularly true when NAFTA is compared to the EC's continental core.