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Economic Integration and the Exchange Rate Regime


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  • Vivek B. Arora
  • Olivier Jeanne


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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Policy Discussion Papers with number 01/1.

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Length: 21
Date of creation: 01 May 2001
Date of revision:
Handle: RePEc:imf:imfpdp:01/1

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Keywords: Floating exchange rates; Trade; exchange rate; exchange rate regime; fixed exchange rate; economic integration; exchange rates; exchange rate flexibility; foreign exchange; terms of trade; commodity prices; free trade; exchange rate regimes; merchandise trade; flexible exchange rates; exchange rate volatility; nominal exchange rate; foreign exchange reserves; exchange rate fluctuations; exchange reserves; exchange rate risk; free trade agreement; trade agreement; asymmetric shocks; free trade areas; bilateral trade; fixed exchange rate regime; trade flows; trade areas; international trade; external shocks; external trade; dollar exchange rate; monetary union; trade integration; exchange rate policies; floating exchange rate regime; floating exchange rate; world trade; regional trade; exchange rate uncertainty; world trade organization; national borders; net exports; equilibrium model; exchange rate arrangement; trading costs; tariff rate; currency areas; exchange market intervention; fixed exchange rate system; policy regimes; volume of trade; volatility in exchange rates; exchange rate system; factor market integration; trade partners; bilateral trade data; net exporter; trade data; trade regime; foreign exchange market; exchange rate volatilities; weighted tariff; global integration; exchange rate adjustment; national sovereignty; bilateral trade flows; world markets; nominal interest rates; skilled workers; optimum currency areas; alternative exchange rate; trade blocs; flexible exchange rate; exchange rate depreciation; trade patterns; monetary integration; fixed exchange rate regimes; exchange rate variability; trade policy review; exchange rate arrangements; real exchange rate; indirect taxes; market integration;

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Cited by:
  1. Lucio Vinhas de Souza, 2002. "Integrated monetary and exchange rate frameworks: are there empirical differences?," Bank of Estonia Working Papers 2002-2, Bank of Estonia, revised 12 Oct 2002.


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