Economic Integration and the Exchange Rate Regime: Some Lessons from Canada

 
Author/Editor: Arora, Vivek B. ; Jeanne, Olivier
 
Publication Date: May 01, 2001
 
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Disclaimer: This Policy Dicussion Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: The Canadian experience with a floating exchange rate regime can shed some light on the question of whether A question of current interest in many parts of the world is whether with growing economic integration among groups of countries makes a fixed exchange rate, or even a common currency, becomes more desirable. This paper looks at the lessons that one may draw from tThe Canadian experience, with a floating exchange rate regime, especially since the inception of the 1989 U.S.-Canada Free Trade Agreement, suggests. We find that exchange rate flexibility has not prevented economic integration between Canada and the United States from increasing substantially, during the 1990s, and has played a useful role in buffering the Canadian economy against asymmetric external shocks. A fixed exchange rate thus does not seem to be a prerequisite for economic integration. It may, however, yield substantial have benefits for some countries that lack monetary credibility or that may be tempted by self-destructive beggar-thy-neighbor policies.
 
Series: Policy Discussion Paper No. 01/1
Subject(s): Exchange rate regimes | Canada | United States | Floating exchange rates | Trade

Author's Keyword(s): Economic integration | exchange rate regime
 
English
Publication Date: May 01, 2001
ISBN/ISSN: 1934-7456 Format: Paper
Stock No: PPIEA0012001 Pages: 21
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