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GTAP Resources: Resource Display

GTAP Resource #1852

"Economic Consequences of Alternative Exchange Rate and Monetary Policy Regimes in Canada"
by Macklem, Tiff, Patrick Osakwe, Hope Pioro and Lawrence Schembri


Abstract
This paper uses a stochastic Dynamic General Equilibrium Model to analyze the economic and welfare consequences for Canada of two alternative exchange rate and monetary policy rules: a flexible exchange rate regime with a price-level target and a permanently fixed exchange rate regime, which might occur with the formation of a North American monetary union. The model is calibrated to Canadian data and then simulated to determine the impact of term-of-trade shocks on key macroeconomic variables under the two regimes. The main finding of the paper is that employment, output, and consumption are much more volatile under a fixed exchange rate. Because agents are risk-averse, this volatility has significant welfare costs. The study also shows that transactions costs would have to be implausibly high and agents almost risk neutral for the welfare advantage of a flexible exchange rate to disappear.


Resource Details (Export Citation) GTAP Keywords
Category: Other CGE Application
Status: Not published
By/In: Revisiting the Case for Flexible Exchange Rates
Date: 2001
Version:
Created: Osakwe, P. (7/8/2005)
Updated: Dimaranan, B. (7/8/2005)
Visits: 1,670
No keywords have been specified.


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