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The Loonie’s Flirtation with Parity: Prospects and Policy Implications

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Author Info

  • Philippe Bergevin

    (C.D. Howe Institute)

  • Colin Busby

    (C.D. Howe Institute)

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    Abstract

    With the Canadian dollar near parity with its US counterpart, monetary policymakers may come under pressure to curb future interest rate increases to limit the loonie’s appreciation. When the value of the loonie is in line with economic fundamentals, such actions would necessarily compromise the domestic inflation target. By examining the factors underpinning the Canada/US exchange rate, we conclude that the present trading range for the loonie is supported by fundamentals. The Bank of Canada should therefore continue its policy of benign neglect with regard to the exchange rate.

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    Bibliographic Info

    Paper provided by C.D. Howe Institute in its series e-briefs with number 101.

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    Length: 7 pages
    Date of creation: Jun 2010
    Date of revision:
    Publication status: Published on the C.D. Howe Institute website, June 2010
    Handle: RePEc:cdh:ebrief:101

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    Keywords: Monitary Policy; Bank of Canada; exchange rate;

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