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150 Results

December 15, 1999

The Exchange Rate, Productivity, and the Standard of Living

This article examines the recent proposition that the decline in Canada's standard of living relative to that of the United States is causally related to the decline in our exchange rate. The authors explore the main channels through which the exchange rate and the standard of living could be related—productivity and the terms of trade—focusing mainly on productivity. They conclude that the decline in world commodity prices and weak demand for domestic output were affecting both Canada's standard of living and the exchange rate and that the flexible exchange rate regime itself did not play an independent role.
November 14, 1999

Real Exchange Rate Indexes for the Canadian Dollar

In this article, the authors explain the methodology used to construct real exchange rate (RER) indexes. They also compare and assess various Canadian RER indexes from both an empirical and conceptual standpoint. The authors conclude that both theory and empirical evidence suggest that the best RER indexes are those based on unit labour costs. They note, however, that, for practical reasons, policy-makers should also consider RER indexes based on prices when formulating monetary policy.

Canada's Exchange Rate Regime and North American Economic Integration: The Role of Risk-Sharing Mechanisms

Staff Working Paper 1999-17 Zahir Antia, Ramdane Djoudad, Pierre St-Amant
Our contribution in this paper is threefold. First, we survey the empirical literature on consumption smoothing mechanisms of regional economic shocks. Second, building on the work of Asdrubali et al. (1996), we present evidence on the role played by various smoothing mechanisms for specific economic shocks affecting Canadian provinces. Third, we assess whether smoothing mechanisms […]
Content Type(s): Staff research, Staff working papers Topic(s): Exchange rate regimes, Exchange rates JEL Code(s): F, F3, F33, F36, G, G1, G15

Why Canada Needs a Flexible Exchange Rate

Staff Working Paper 1999-12 John Murray
This paper explores the arguments for and against a common currency for Canada and the United States and attempts to determine whether such an arrangement would offer any significant advantages for Canada compared with the present flexible exchange rate system. The paper first reviews the theoretical arguments advanced in the economics literature in support of fixed and flexible currency arrangements. A discussion of Canada's past experience with the two exchange rate systems follows, after which there is a survey of the empirical evidence published on Canada's current and prospective suitability for some form of fixed currency arrangement with the United States. The final section of the paper examines critically a number of concerns raised about the behaviour of the current flexible exchange rate system.
Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates JEL Code(s): F, F3, F31

Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico

Staff Working Paper 1999-10 Patrick Osakwe, Lawrence L. Schembri
This paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate. A sticky-price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes. Output is found to […]
Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates JEL Code(s): F, F3, F31, F4, F41

The Exchange Rate Regime and Canada's Monetary Order

Staff Working Paper 1999-7 David Laidler
It is a mistake to debate the merits of alternative exchange rate regimes for Canada independently of other features of the monetary order. A coherent order requires a well-defined goal for monetary policy, one that the authorities are capable of achieving, and that anchors private sector expectations. For it to be liberal, the relevant authorities […]
Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Monetary policy framework JEL Code(s): E, E5, E52, F, F3, F31

An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention

Staff Working Paper 1999-4 Neil Beattie, Jean-François Fillion
This paper assesses the effectiveness of Canada's official foreign exchange intervention in moderating intraday volatility of the Can$/US$ exchange rate, using a 2-1/2-year sample of 10-minute exchange rate data. The use of high frequency data (higher than daily frequency) should help in assessing the impact of intervention since the foreign exchange market is efficient and […]
Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets JEL Code(s): F, F3, F31, G, G1, G15
November 13, 1998

Currency crises and fixed exchange rates in the 1990s: A review

Currency crises in the 1990s, especially those in emerging markets, have sharply disrupted economic activity, affecting not only the country experiencing the crisis, but also those with trade, investment, and geographic links. The authors review the theoretical literature and empirical evidence regarding these crises. They conclude that their primary cause is a fixed nominal exchange rate combined with macroeconomic imbalances, such as current account or fiscal deficits, that the market perceives as unsustainable at the prevailing real exchange rate. They also conclude that currency crises can be prevented through the adoption of sound monetary and fiscal policies, effective regulation and supervision of the financial sector, and a more flexible nominal exchange rate.

Fundamentals, Contagion and Currency Crises: An Empirical Analysis

Staff Working Paper 1998-10 Mark Kruger, Patrick Osakwe, Jennifer Page
This paper examines the determinants of currency crises in Latin America, Asia and Africa. It asks two basic questions: (a) Are currency crises linked to economic fundamentals? and; (b) Is there any evidence of a contagion effect after controlling for the potential effects of economic fundamentals? Using pooled annual data for 19 developing countries spanning […]
Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates JEL Code(s): F, F3
November 14, 1997

European economic and monetary union: Background and implications

The European Union, which currently consists of 15 states, occupies an important place among the advanced economies. The final stage of the European economic and monetary union (EMU) is scheduled to begin in January 1999 with the adoption of a common currency called the "euro." A decision on which countries will participate in the euro area in 1999 will be made next spring based in part on the achievement of the economic criteria laid out in the Maastricht Treaty. In this article, the authors, after a brief discussion of the historical background, cast some light on the institutional aspects of the EMU, on the formulation and implementation of economic policy, as well as on the internal and external effects of EMU completion. For Canada, the direct implications of the shift to the euro appear to be relatively modest, at least in the short run.
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