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Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience

  • Michael D. Bordo
  • Angela Redish

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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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 23 (1990)
Issue (Month): 2 (May)
Pages: 357-80

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Handle: RePEc:cje:issued:v:23:y:1990:i:2:p:357-80
Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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  1. 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 565-74, November.
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