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Inflation targets versus international monetary integration: a Canadian perspective

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  • Laidler, David

Abstract

The debate about whether Canada should seek some form of monetary integration with the United States is surveyed. It is argued that the choice here is among overall monetary orders, rather than among exchange rate regimes considered in isolation, with particular attention needing to be paid to questions of the credibility of policy and the accountability of policy makers. Canada's recent economic performance under its current monetary order -- inflation targets, underpinned by a flexible exchange rate, and pursued by accountable policy makers -- is assessed, and arguments that the flexible exchange rate has undermined the economy's real performance are analysed. Alternative orders are considered. It is concluded that the most economically attractive among them -- negotiated adoption by Canada of the US dollar with provision being made for meaningful Canadian input into policy decisions and the supervision and oversight of the monetary system -- is not politically attainable, and that the economic and political drawbacks associated with intermediate arrangements are large enough to render them clearly inferior to Canada's current monetary order.

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Bibliographic Info

Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 16 (2005)
Issue (Month): 1 (March)
Pages: 35-64

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Handle: RePEc:eee:streco:v:16:y:2005:i:1:p:35-64

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Web page: http://www.elsevier.com/locate/inca/525148

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References

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  1. Y.Chen & K. Rogoff, 2003. "Commodity Currencies and Empirical Exchange Rate Puzzles," DNB Staff Reports (discontinued) 76, Netherlands Central Bank.
  2. Niamh Sheridan & Laurence M. Ball, 2003. "Does Inflation Targeting Matter?," IMF Working Papers 03/129, International Monetary Fund.
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  5. Laidler, David, 1999. "The Exchange Rate Regime and Canada's Monetary Order," Working Papers 99-7, Bank of Canada.
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  9. Thom, Rodney & Walsh, Brendan, 2002. "The effect of a currency union on trade: Lessons from the Irish experience," European Economic Review, Elsevier, vol. 46(6), pages 1111-1123, June.
  10. Neumann, Manfred J. M. & von Hagen, J├╝rgen, 2002. "Does inflation targeting matter?," ZEI Working Papers B 01-2002, ZEI - Center for European Integration Studies, University of Bonn.
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Cited by:
  1. Marzo, Massimiliano & Strid, Ingvar & Zagaglia, Paolo, 2009. "Nonlinearity in monetary policy: A reconsideration of the opportunistic approach to disinflation," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 288-300, December.

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