Economic Integration and the Exchange Rate Regime

Economic Integration and the Exchange Rate Regime

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The Canadian experience with a floating exchange rate regime can shed some light on the question of whether A question of current interest in many parts of the world is whether with growing economic integration among groups of countries makes a fixed exchange rate, or even a common currency, becomes more desirable. This paper looks at the lessons that one may draw from tThe Canadian experience, with a floating exchange rate regime, especially since the inception of the 1989 U.S.-Canada Free Trade Agreement, suggests. We find that exchange rate flexibility has not prevented economic integration between Canada and the United States from increasing substantially, during the 1990s, and has played a useful role in buffering the Canadian economy against asymmetric external shocks. A fixed exchange rate thus does not seem to be a prerequisite for economic integration. It may, however, yield substantial have benefits for some countries that lack monetary credibility or that may be tempted by self-destructive beggar-thy-neighbor policies.including Canada? they do point to a possibly important qualitative difference between fixed exchange rate regimes and ... interest rates fell markedly after the September 1993 change in foreign exchange intervention policy, when the Bank ofanbsp;...

Title:Economic Integration and the Exchange Rate Regime
Author:Mr. Vivek B. Arora, Mr. Olivier Jeanne
Publisher:International Monetary Fund - 2001-05-01


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