Economic Integration and the Exchange Rate Regime: Some Lessons from Canada
IMF Policy Discussion Papers, May 1, 2001
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- Economic Integration and the Exchange Rate Regime: Some Lessons from Canada
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Bibliographic details
- Authors: Vivek Arora, Olivier D Jeanne
- Published: May 1, 2001
- Series: IMF Policy Discussion Papers
- DOI: https://doi.org/10.5089/9781451974942.003
Summary and main findings
- The paper examines the Canadian experience with a floating exchange rate regime, especially since the inception of the 1989 U.S.-Canada Free Trade Agreement.
- Key finding: exchange rate flexibility has not prevented economic integration between Canada and the United States from increasing substantially during the 1990s.
- Exchange rate flexibility has played a useful role in buffering the Canadian economy against asymmetric external shocks.
- Conclusion: a fixed exchange rate does not seem to be a prerequisite for economic integration.
- Conditional observation: a fixed exchange rate may yield substantial benefits for some countries that lack monetary credibility or that may be tempted by self-destructive beggar-thy-neighbor policies.
Analytical focus and themes
- Interaction between exchange rate regime choice (floating versus fixed) and growing economic integration among groups of countries.
- Role of exchange rate flexibility in absorbing external shocks and facilitating adjustment.
- Comparative consideration of monetary credibility and policy incentives that may influence the desirability of fixed exchange rates or common currencies.
Policy implications and recommendations
- Exchange rate flexibility can coexist with rising economic integration; policies need not treat fixed exchange rates as a necessary condition for deeper integration.
- Countries lacking monetary credibility or prone to beggar-thy-neighbor policies could gain substantial benefits from fixed exchange rate arrangements or currency pegs.
Subjects and keywords
- Subject: Conventional peg, Currencies, Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Foreign exchange, Money
- Keywords: Canada, Canadian-U.S. dollar exchange rate, Conventional peg, core CPI, Currencies, Economic integration, Europe, exchange market intervention, Exchange rate arrangements, Exchange rate flexibility, exchange rate fluctuation, exchange rate regime, exchange rate uncertainty, exchange rate volatility, Exchange rates, free trade trade agreement, inflation rate, PDP, statistics Canada, trade, trade specialization, U.S. integration, U.S. monetary policies
Source: IMF Policy Discussion Paper — "Economic Integration and the Exchange Rate Regime: Some Lessons from Canada" (Vivek Arora and Olivier D Jeanne), Policy Discussion Paper No. 2001/001, May 1, 2001.
Content in this bundle
- Economic Integration and the Exchange Rate Regime: Some Lessons from Canada - PDP/01/1