TY  - JOUR
AU  - Bordo,Michael D.
AU  - Dib,Ali
AU  - Schembri,Lawrence
TI  - Canada's Pioneering Experience with a Flexible Exchange Rate in the 1950s:(Hard) Lessons Learned for Monetary Policy in a Small Open Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13605
PY  - 2007
Y2  - November 2007
UR  - http://www.nber.org/papers/w13605
L1  - http://www.nber.org/papers/w13605.pdf
N1  - Author contact info:
Michael D. Bordo
Department of Economics
Rutgers University
New Jersey Hall
75 Hamilton Street
New Brunswick, NJ 08901
Tel: 732/822-7152
Fax: 732/932-7416
E-Mail: bordo@econ.rutgers.edu

Ali Dib
Bank of Canada
234 Wellington St.
Ottawa, Ontario, Canada
K1A 0G9
E-Mail: adib@bank-banque-canada.ca

Lawrence Schembri
Bank of Canada
234 Wellington Street
Ottawa, Ontario, Canada
K1A 0G9
E-Mail: lschembri@bank-banque-canada.ca
AB  - 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.
ER  -