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Nafta toward a Common Currency: An Economic Feasibility Study

41 Pages Posted: 8 Aug 2008  

Kelly Hugger

Colorado College - Department of Economics and Business

Date Written: July 8, 2008


The recent emergence of the Euro, combined with the completion of a decade of North American Free Trade Agreement (NAFTA) has sparked interest in adopting a common currency for North America. This study examines the likelihood that Canada, Mexico, and the United States will adopt a common currency under fixed exchange rate regimes. The benefits and costs of a common currency are explored using the theory of optimum currency areas (OCA). Empirical research focuses on several variables including intra-regional and intra-industry trade, trade openness, gross domestic product, inflation rates, interest rates, economic growth rates, business cycle synchronization, factor mobility, fiscal policy and monetary policy coordination. The analysis also presents a comparative analysis of NAFTA with Economic and Monetary Union (EMU) nations on different economic criteria. Finally, correlation and regression analysis further explores the likelihood that members of NAFTA will economically integrate. Though this research concludes that it is economically feasible for NAFTA members to move towards a common currency, this venture depends on the political readiness of the nations.

Keywords: NAFTA, currency area, EMU, exchange rate

JEL Classification: E42, F31, F33, F42

Suggested Citation

Hugger, Kelly, Nafta toward a Common Currency: An Economic Feasibility Study (July 8, 2008). Available at SSRN: or

Kelly Hugger (Contact Author)

Colorado College - Department of Economics and Business ( email )

14 E Cache La Poudre Street
Colorado Springs, CO 80903
United States

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