Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s:(Hard) Lessons Learned for Monetary Policy in a Small Open Economy

Michael David Bordo (), Ali Dib () and Lawrence Schembri

No 13605, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This 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.

JEL-codes: E32 E37 F31 F32 N01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-ifn, nep-mac and nep-mon
Date: 2007-11
Note: ME IFM
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Working Paper: Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s: (Hard) Lessons Learned for Monetary Policy in a Small Open Economy (2007)
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