Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s:(Hard) Lessons Learned for Monetary Policy in a Small Open Economy
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13605.
Date of creation: Nov 2007
Date of revision:
Note: ME IFM
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Other versions of this item:
- Michael Bordo & Ali Dib & Lawrence Schembri, 2010. "Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s: (Hard) Lessons Learned for Monetary Policy in a Small Open Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 6(3), pages 51-99, September.
- Michael Bordo & Ali Dib & Lawrence Schembri, 2007. "Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s: (Hard) Lessons Learned for Monetary Policy in a Small Open Economy," Working Papers 07-45, Bank of Canada.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- N01 - Economic History - - General - - - Development of the Discipline: Historiographical; Sources and Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
- NEP-CBA-2007-11-17 (Central Banking)
- NEP-HIS-2007-11-17 (Business, Economic & Financial History)
- NEP-IFN-2007-11-17 (International Finance)
- NEP-MAC-2007-11-17 (Macroeconomics)
- NEP-MON-2007-11-17 (Monetary Economics)
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- Chayawadee Chai-anant & Runchana Pongsaparn & Kessarin Tansuwanarat, 2008. "Roles of Exchange Rate in Monetary Policy under Inflation Targeting: A Case Study for Thailand," Working Papers 2008-03, Economic Research Department, Bank of Thailand.
- Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2011.
"U.S. Intervention During the Bretton Woods Era: 1962-1973,"
NBER Working Papers
16946, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2011. "U.S. intervention during the Bretton Wood Era:1962-1973," Working Paper 1108, Federal Reserve Bank of Cleveland.
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