The Choice of Efficient Monetary Arrangements in the Post Meech Lake Era

Robert Lucas and B. Reid

Canadian Public Policy, 1991, vol. 17, issue 4, 415-433

Abstract: The authors consider the choice of the monetary arrangements that might and should characterize the constitutional agreement that results from the current debate on Canada's future constitutional structure. The options considered.are free exchange rates, fixed exchange rates, and a U.S. dollar currency union, and the criteria utilized are the stability of real income and employment and the efficiency resource allocation. They conclude that a currency union is superior to fixed exchange rates and fixed exchange rates are superior to free exchange rates in a world of consistency in nominal environments. However, if we are unwilling to surrender our autonomy over the aggregate price level to our principal trading partner, then a free exchange rate regime is the only feasible choice.

Date: 1991
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