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Abstract

This paper presents the theoretical and empirical aspects of a monetary union between Brazil and Argentina based on the concept of Optimal Monetary Union. The behavior of some Brazilian and Argentinean macroeconomic indicators such as total debt, public deficit, interest rate and inflation rate have been analyzed. Symmetry analysis of economic cycles between these two countries was also done. Most Brazilian and Argentinean macroeconomic indicators have been divergent, probably due to the different monetary and exchange rate policies adopted by these two countries during the 90´s.The commercial integration analysis between Brazil and Argentina had detected a low level of commercial integration. Results also suggest that since 1998 there has been a divergent trend of a monetary area formation between these two countries. In other words, in the short run there has been high costs and low benefits associated to a single currency in Mercosur.

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