Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience
In 1929, the Canadian government floated the exchange rate, which stayed at parity with sterling until 1931, when the Canadian dollar appreciated with respect to sterling and depreciated with respect to the U.S. dollar. This paper uses Robert J. Barro and David B. Gordon's reputation theory to explain the stability of the Canadian dollar before 1931 and the subsequent depreciation/appreciation. Econometric analysis is then used to support the argument that between 1931 and 1933 the level of the exchange rate was determined by expectations of a return to parity with either sterling or the U.S. dollar.
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Volume (Year): 23 (1990)
Issue (Month): 2 (May)
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- Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-574, November.