The Namu Debate

In my comments I want to emphasize the major problems with flexible exchange rates in light of the longer term resource allocation effects on the economy of the exchange rate regime. These are undoubtedly one of the major considerations driving the Canadian interest in the North American monetary union (NAMU), and exchange rate stability in North America more generally. It is worth emphasizing that the Canadian-US situation is much different than for many other small, open economies. Canada not only has a high degree of openness, but it trades predominantly with a single country. Moreover, as Tom Courchene has emphasized, this integration is very much a north-south regional integration which reflects the peculiar geography of Canada relative to virtually all other countries. The fact of this integration coupled with the shift in the wealth-generation process within Canada toward human-capital-intensive activities has considerably raised the benefit-cost ratio of exchange rate fixity. Let me elaborate on these themes

Political science · Canadian Policy and Governance · Economic Theory and Policy · Global Financial Crisis and Policies · Philosophy