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Title:Canada's pioneering experience with a flexible exchange rate in the 1950s: (hard) lessons learned for monetary policy in a small open economy PDF Logo
Authors:Bordo, Michael
Dib, Ali
Schembri, Lawrence
Issue Date:2007
Series/Report no.:Bank of Canada Working Paper 2007,45
Abstract:This paper revisits Canada's pioneering experience with floating exchange rate over the period 19501962. It examines whether the floating rate was the best option for Canada in the 1950s by developing and estimating a New Keynesian small open economy model of the Canadian economy. The model is then used to conduct a counterfactual analysis of the impact of different monetary policies and exchange rate regimes. The main finding indicates that the flexible exchange rate helped reduce the volatility of key macroeconomic variables. The Canadian monetary authorities, however, clearly did not understand all of the implications of conducting monetary policy under a flexible exchange rate and a high degree of capital mobility. The paper confirms that monetary policy was more volatile in the post-1957 period and Canada's macroeconomic performance suffered as a result.
Subjects:Exchange rates
Economic models
JEL:E32
E37
F31
F32
N1
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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