Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s: (Hard) Lessons Learned for Monetary Policy in a Small Open Economy / Michael D. Bordo, Ali Dib, Lawrence Schembri.

Format:

Book

Author/Creator:

Bordo, Michael D.

Contributor:

National Bureau of Economic Research.

Dib, Ali.

Schembri, Lawrence.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13605.

NBER working paper series no. w13605

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Canada's pioneering experience with a flexible exchange rate in the 1950s

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

This paper revisits Canada's pioneering experience with floating exchange rate over the period 1950-1962. 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 macro-economic 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.

Notes:

Print version record

November 2007.