Should Canadian Regions Adopt the U.S. Dollar?
In this paper, we investigate whether it is preferable for Canadian regions to individually adopt the U.S. dollar or to remain with the current currency arrangement. The empirical analysis focuses on the cross-correlations of various business cycle measures of Canadian regions, of Canada, and of the United States. The business cycle investigation is completed by the analysis of two other important criteria for optimum currency areas, i.e., industrial specialization and trade interdependence. Our results highlight a significant heterogeneity across Canadian provinces. In particular, it transpires that, while the peripheral regions obviously gain from the current flexible exchange rate regime, it could be economically advantageous for the central provinces of Ontario and Quebec to adopt the U.S. dollar.
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